Starting January 1, 2024, a significant number of businesses will be required to comply with the Corporate Transparency Act (“CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company.

Starting January 1, 2024, a significant number of businesses will be required to comply with the Corporate Transparency Act (“CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company.

It is anticipated that 32.6 million businesses will be required to comply with this reporting requirement. The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, the financing of terrorism and other illicit activity.

The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.

Below is some preliminary information for you to consider as you approach the implementation period for this new reporting requirement. This information is meant to be general-only and should not be applied to your specific facts and circumstances without consultation with competent legal counsel and/or other retained professional adviser.

What entities are required to comply with the CTA’s BOI reporting requirement?

Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.

Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.

Are there any exemptions from the filing requirements?

There are twenty-three categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.

In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:

1. Employ more than 20 people in the U.S.;
2. Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
3. Be physically present in the U.S.

Who is a beneficial owner?

Any individual who, directly or indirectly, either:

• Exercises “substantial control” over a reporting company, or
• Owns or controls at least 25 percent of the ownership interests of a reporting company
  
  

An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.

The detailed CTA regulations define the terms "substantial control" and "ownership interest" further.

When must companies file?

There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.

• New entities (created/registered after 12/31/23) — must file within 90 days
• Existing entities (created/registered before 1/1/24) — must file by 1/1/25
• Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days

What sort of information is required to be reported?

Companies must report the following information:

• Full name of the reporting company,
• Any trade name or doing business as (DBA) name,
• Business address, state or Tribal jurisdiction of formation, and
• An IRS taxpayer identification number (TIN).

Additionally, information on the beneficial owners of the entity and, for newly created entities, the company applicants of the entity is required. This information includes:

• Name,
• Birthdate,
• Address, and
• Unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.

Risk of non-compliance

Penalties for willfully not complying with the BOI reporting requirement can result in criminal and civil penalties of $500 per day and up to $10,000 with up to two years of jail time. For more information about the CTA, visit www.aicpa-cima.com/boi.

The Financial Crimes Enforcement Network (FinCEN) has removed the requirement that U.S. companies and U.S. persons must report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act.

The Financial Crimes Enforcement Network (FinCEN) has removed the requirement that U.S. companies and U.S. persons must report beneficial ownership information (BOI) to FinCEN under the Corporate Transparency Act. This interim final rule is consistent with the Treasury Department's recent announcement that it was suspending enforcement of the CTA against U.S. citizens, domestic reporting companies, and their beneficial owners, and that it would be narrowing the scope of the BOI reporting rule so that it applies only to foreign reporting companies.

The interim final rule amends the BOI regulations by:

• changing the definition of "reporting company" to mean only those entities that are formed under the law of a foreign country and that have registered to do business in any U.S. State or Tribal jurisdiction by filing of a document with a secretary of state or similar office (these entities had formerly been called "foreign reporting companies"), and
• exempting entities previously known as "domestic reporting companies" from BOI reporting requirements.

Under the revised rules, all entities created in the United States (including those previously called "domestic reporting companies") and their beneficial owners are exempt from the BOI reporting requirement, including the requirement to update or correct BOI previously reported to FinCEN. Foreign entities that meet the new definition of "reporting company" and do not qualify for a reporting exemption must report their BOI to FinCEN, but are not required to report any U.S. persons as beneficial owners. U.S. persons are not required to report BOI with respect to any such foreign entity for which they are a beneficial owner.

Reducing Regulatory Burden

On January 31, 2025, President Trump issued Executive Order 14192, which announced an administration policy "to significantly reduce the private expenditures required to comply with Federal regulations to secure America’s economic prosperity and national security and the highest possible quality of life for each citizen" and "to alleviate unnecessary regulatory burdens" on the American people.

Consistent with the executive order and with exemptive authority provided in the CTA, the Treasury Secretary (in concurrence with the Attorney General and the Homeland Security Secretary) determined that BOI reporting by domestic reporting companies and their beneficial owners "would not serve the public interest" and "would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes."The preamble to the interim final rule notes that the Treasury Secretary has considered existing alternative information sources to mitigate risks. For example, under the U.S. anti-money laundering/countering the financing of terrorism regime, covered financial institutions still have a continuing requirement to collect a legal entity customer's BOI at the time of account opening (see 31 CFR 1010.230). This will serve to mitigate certain illicit finance risks associated with exempting domestic reporting companies from BOI reporting.

BOI reporting by foreign reporting companies is still required, because such companies present heightened national security and illicit finance risks and different concerns about regulatory burdens. Further, the preamble points out that the policy direction to minimize regulatory burdens on the American people can still be achieved by exempting foreign reporting companies from having to report the BOI of any U.S. persons who are beneficial owners of such companies.

Deadlines Extended for Foreign Companies

When the interim final rule is published in the Federal Register, the following reporting deadlines apply:

• Foreign entities that are registered to do business in the United States before the publication date of the interim final rule must file BOI reports no later than 30 days from that date.
• Foreign entities that are registered to do business in the United States on or after the publication date of the interim final rule have 30 calendar days to file an initial BOI report after receiving notice that their registration is effective.

Effective Date; Comments Requested

The interim final rule is effective on the date of its publication in the Federal Register.

FinCEN has requested comments on the interim final rule. In light of those comments, FinCEN intends to issue a final rule later in 2025.

Written comments must be received on or before the date that is 60 days after publication of the interim final rule in the Federal Register.

Interested parties can submit comments electronically via the Federal eRulemaking Portal at http://www.regulations.gov. Alternatively, comments may be mailed to Policy Division, Financial Crimes Enforcement Network, P.O. Box 39, Vienna, VA 22183. For both methods, refer to Docket Number FINCEN-2025-0001, OMB control number 1506-0076 and RIN 1506-AB49.

FinCEN Interim Final Rule RIN 1506-AB49

FinCEN News Release

Melanie Krause, the IRS’s Chief Operating Officer, has been named acting IRS Commissioner following the retirement of Doug O’Donnell. Treasury Secretary Scott Bessent acknowledged O’Donnell’s 38 years of service, commending his leadership and dedication to taxpayers.

Melanie Krause, the IRS’s Chief Operating Officer, has been named acting IRS Commissioner following the retirement of Doug O’Donnell. Treasury Secretary Scott Bessent acknowledged O’Donnell’s 38 years of service, commending his leadership and dedication to taxpayers. O’Donnell, who had been acting Commissioner since January, will retire on Friday, expressing confidence in Krause’s ability to guide the agency through tax season. Krause, who joined the IRS in 2021 as Chief Data & Analytics Officer, has since played a key role in modernizing operations and overseeing core agency functions. With experience in federal oversight and operational strategy, Krause previously worked at the Government Accountability Office and the Department of Veterans Affairs Office of Inspector General. She became Chief Operating Officer in 2024, managing finance, security, and procurement. Holding advanced degrees from the University of Wisconsin-Madison, Krause will lead the IRS until a permanent Commissioner is appointed.

A grant disbursement to a corporation to be used for rent payments following the September 11, 2001 terrorist attacks on the World Trade Center was not excluded from the corporation's gross income. Grants were made to affected businesses with funding provided by the U.S. Department of Housing and Urban Development. The corporation's grant agreement required the corporation to employ a certain number of people in New York City, with a portion of those people employed in lower Manhattan for a period of time. Pursuant to this agreement, the corporation requested a disbursement as reimbursement for rent expenses.

A grant disbursement to a corporation to be used for rent payments following the September 11, 2001 terrorist attacks on the World Trade Center was not excluded from the corporation's gross income. Grants were made to affected businesses with funding provided by the U.S. Department of Housing and Urban Development. The corporation's grant agreement required the corporation to employ a certain number of people in New York City, with a portion of those people employed in lower Manhattan for a period of time. Pursuant to this agreement, the corporation requested a disbursement as reimbursement for rent expenses.

Exclusions from Gross Income

Under the expansive definition of gross income, the grant proceeds were income unless specifically excluded. Payments are only excluded under Code Sec. 118(a) when a transferor intends to make a contribution to the permanent working capital of a corporation. The grant amount was not connected to capital improvements nor restricted for use in the acquisition of capital assets. The transferor intended to reimburse the corporation for rent expenses and not to make a capital contribution. As a result, the grant was intended to supplement income and defray current operating costs, and not to build up the corporation's working capital.

The grant proceeds were also not a gift under Code Sec. 102(a). The motive for providing the grant was not detached and disinterested generosity, but rather a long-term commitment from the company to create and maintain jobs. In addition, a review of the funding legislation and associated legislative history did not show that Congress possessed the requisite donative intent to consider the grant a gift. The program was intended to support the redevelopment of the area after the terrorist attacks. Finally, the grant was not excluded as a qualified disaster relief payment under Code Sec. 139(a) because that provision is only applicable to individuals.

Accuracy-Related Penalty

Because the corporation relied on Supreme Court decisions, statutory language, and regulations, there was substantial authority for its position that the grant proceeds were excluded from income. As a result, the accuracy-related penalty was not imposed.

CF Headquarters Corporation, 164 TC No. 5, Dec. 62,627

The parent corporation of two tiers of controlled foreign corporations (CFCs) with a domestic partnership interposed between the two tiers was not entitled to deemed paid foreign tax credits under Code Sec. 902 or Code Sec. 960 for taxes paid or accrued by the lower-tier CFCs owned by the domestic partnership. Code Sec. 902 did not apply because there was no dividend distribution. Code Sec. 960 did not apply because the Code Sec. 951(a) inclusions with respect to the lower-tier CFCs were not taken into account by the domestic corporation.

The parent corporation of two tiers of controlled foreign corporations (CFCs) with a domestic partnership interposed between the two tiers was not entitled to deemed paid foreign tax credits under Code Sec. 902 or Code Sec. 960 for taxes paid or accrued by the lower-tier CFCs owned by the domestic partnership. Code Sec. 902 did not apply because there was no dividend distribution. Code Sec. 960 did not apply because the Code Sec. 951(a) inclusions with respect to the lower-tier CFCs were not taken into account by the domestic corporation.

Background

The parent corporation owned three CFCs, which were upper-tier CFC partners in a domestic partnership. The domestic partnership was the sole U.S. shareholder of several lower-tier CFCs.

The parent corporation claimed that it was entitled to deemed paid foreign tax credits on taxes paid by the lower-tier CFCs on earnings and profits, which generated Code Sec. 951 inclusions for subpart F income and Code Sec. 956 amounts. The amounts increased the earnings and profits of the upper-tier CFC partners.

Deemed Paid Foreign Tax Credits Did Not Apply

Before 2018, Code Sec. 902 allowed deemed paid foreign tax credit for domestic corporations that owned 10 percent or more of the voting stock of a foreign corporation from which it received dividends, and for taxes paid by another group member, provided certain requirements were met.

The IRS argued that no dividends were paid and so the foreign income taxes paid by the lower-tier CFCs could not be deemed paid by the entities in the higher tiers.

The taxpayer agreed that Code Sec. 902 alone would not provide a credit, but argued that through Code Sec. 960, Code Sec. 951 inclusions carried deemed dividends up through a chain of ownership. Under Code Sec. 960(a), if a domestic corporation has a Code Sec. 951(a) inclusion with respect to the earnings and profits of a member of its qualified group, Code Sec. 902 applied as if the amount were included as a dividend paid by the foreign corporation.

In this case, the domestic corporation had no Code Sec. 951 inclusions with respect to the amounts generated by the lower-tier CFCs. Rather, the domestic partnerships had the inclusions. The upper- tier CFC partners, which were foreign corporations, included their share of the inclusions in gross income. Therefore, the hopscotch provision in which a domestic corporation with a Code Sec. 951 inclusion attributable to earnings and profits of an indirectly held CFC may claim deemed paid foreign tax credits based on a hypothetical dividend from the indirectly held CFC to the domestic corporation did not apply.

Eaton Corporation and Subsidiaries, 164 TC No. 4, Dec. 62,622

Other Reference:

• Code Sec. 960

An appeals court affirmed that payments made by an individual taxpayer to his ex-wife did not meet the statutory criteria for deductible alimony. The taxpayer claimed said payments were deductible alimony on his federal tax returns.

An appeals court affirmed that payments made by an individual taxpayer to his ex-wife did not meet the statutory criteria for deductible alimony. The taxpayer claimed said payments were deductible alimony on his federal tax returns.

The taxpayer’s payments were not deductible alimony because the governing divorce instruments contained multiple clear, explicit and express directions to that effect. The former couple’s settlement agreement stated an equitable division of marital property that was non-taxable to either party. The agreement had a separate clause obligating the taxpayer to pay a taxable sum as periodic alimony each month. The term “divorce or separation instrument” included both divorce and the written instruments incident to such decree.

Unpublished opinion affirming, per curiam, the Tax Court, Dec. 62,420(M), T.C. Memo. 2024-18.

J.A. Martino, CA-11