What do healthcare professionals need to know?
On January 1, 2024, the Corporate Transparency Act (CTA) came into effect, impacting a vast array of small businesses across the United States. This legislation places considerable requirements on small businesses, necessitating the reporting of essential information.
The primary objective of the CTA is to align the U.S. with international anti-money-laundering standards by providing law enforcement with the “Beneficial Ownership Information” (BOI) of small businesses operating in the U.S. for the purpose of detecting, preventing, and punishing terrorism, money laundering, and other crimes conducted through small business entities.
Exemptions and Considerations for Medical Practices
Certain entities are exempt from the regulation, including tax-exempt Section 501(c)(3) corporations and limited liability companies physically operating in the U.S. with more than 20 fulltime employees and over $5 million in annual gross receipts. Medical practices should review these exceptions in consultation with legal counsel, as they apply differently depending on various factors.
What Does the CTA Require?
Under the CTA, the “Beneficial Owners” of most small businesses registered with the Secretary of the state in which they were formed are mandated to report information regarding their owners – their “Beneficial Ownership Information” – to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). For each Beneficial Owner, an online report must be filed with FinCEN that includes the Owner’s:
- Full legal name
- Date of birth
- Current residential address (except for business entities, which must provide their business address)
- ID number from an acceptable document (e.g., current Passport or driver’s license)
- An image of the identifying document from which the number is derived
While the reported information will not be publicly available, FinCEN may disclose it to U.S. national security and law enforcement agencies; state and local law enforcement agencies with court approval; certain financial institutions with the Beneficial Owner’s consent; and foreign law enforcement agencies that qualify to receive the information.
Who Is a Beneficial Owner?
A Beneficial Owner is any individual or entity that currently, directly or indirectly, exercises substantial control over the Reporting Company or owns or controls at least 25% of the ownership interests of the company.
Who Is a Company Applicant?
A Company Applicant is the individual(s) who directly files Articles of Organization or Articles of Incorporation with the entity’s state. This may include your attorney or your accountant.
Who Is Exempt?
While there are a number of exempt entities present in the regulation, those most relevant to the practice of medicine include the following:
- A tax-exempt Section 501(c) corporation.
- Certain corporations, LLCs, or other similar entities that operate exclusively to provide financial assistance to or hold governance rights over, tax-exempt Section 501(c) corporations, political organizations, charitable trusts, or split-interest trusts exempt from taxation,
- An entity that employs more than 20 employees on a full-time basis in the United States, filed federal income tax returns in the previous year demonstrating more than $5,000,000 in gross receipts or sales, and that maintains an operating presence at a physical office within the United States,
- A subsidiary of an exempt entity
The Reporting Company and Beneficial Owner information described above is only a brief summary of the criteria for filing a BOI Report. The regulation itself is far more complex. As always, please consult your attorney to determine if your practice entity is a Reporting Company or qualifies for an exemption. The exempt status of a business entity is subject to change, as can the status of Beneficial Owners of non-exempt entities.
Why You Must Comply
It is illegal for any person to willfully provide, or attempt to provide, false or fraudulent BOI to FinCEN or to willfully fail to report complete or updated BOI to FinCEN. Any person violating the reporting requirements of the Corporate Transparency Act is liable for civil penalties of not more than $500 for each day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000.
When You Should Report
Reporting companies created by registering with the office the Secretary of State of any U.S. State or territory, or a Tribal government, before January 1, 2024, have until January 1, 2025, to file an initial BOI report with FinCEN. Any Reporting Company created or registered with a State in 2024 will have ninety (90) calendar days to file its initial BOI report, from the first to occur of the date the company receives actual or public notice (the first date a corporation’s articles are available online via the State’s business record repository) from their Secretary of State that its creation and/or registration is effective. Reporting companies created or registered on or after January 1, 2025, will only have thirty (30) calendar days to file the initial BOI report from the notice dates described above.
Future of the Act
The CTA is currently in force as a matter of federal law and creates significant regulatory compliance obligations for small businesses, including medical practices. Understanding those obligations and compliance deadlines is crucial to avoid monetary and other penalties.
However, on March 1, 2024, a federal court in Alabama ruled the Act unconstitutional and enjoined FinCEN from enforcing it against the current members of the National Small Business Association, which filed the lawsuit. FinCEN has appealed the decision to the U.S. Court of Appeals for the Eleventh Circuit. The outcome of the appeal, and whether the issue of the Act’s Constitutionality will end up before the U.S. Supreme Court may not be known for at least another year. In the meantime, all other small businesses and practices in the U.S. that are Reporting Companies must comply.