Every business in the country has to evaluate its obligation to comply with the Corporate Transparency Act (CTA) by December 31, 2024. The CTA was enacted as part of the Federal Anti-Money Laundering Act of 2020, and the regulations became effective on January 1, 2024. Many practices may already have complied with the law by either submitting the required information or by determining that they are exempt from filing. Failure to comply may invoke civil penalties of $591 per day along with criminal penalties of two years in prison and a $10,000 fine.
In general, many medical practices will not fit into an exemption category. However, one that could apply to a large group practice is the Large Operating Company Exemption (#21) if all of the following criteria are met:
- The practice has more than 20 full-time employees.
- More than 20 full-time employees are employed in the U.S.
- The practice has an operating presence at a physical office within the U.S. that it owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.
- The practice had more than $5 million in gross receipts reported on its income tax return.
The filing with the federal Financial Crimes Enforcement Network (FinCEN) is done online. Businesses that are required to file must report information about the beneficial owners of the business. In most medical practices, this would be the physicians who are its shareholders, partners, or LLC members. Specifically, the CTA requires practices to submit the entity’s full legal name and any trade name(s), address, and jurisdiction of formation, and identifying information (including names, residential addresses, and a copy of a government-issued ID) for all of the practice’s “Beneficial Owners.”
A Beneficial Owner is an individual who either owns or controls at least 25% of the ownership interests of the practice or who exercises substantial control over the practice. The definition of “substantial control” is the one that will come into play for any practice that has more than four equal owners (i.e., no one owns more than 25% of the practice). The Beneficial Owners in this case would include the senior officers, anyone who holds authority over the appointment or removal of the senior officers, the important decision-makers with respect to the practice’s business, finances, and/or structure, or anyone who has any other form of substantial control over the practice.
Once the practice determines who its Beneficial Owners are, filing is done either directly online or by completing a PDF that is submitted online. In either case, one person is chosen to be the Company Applicant who will file the Beneficial Ownership Information Report (BOIR) for the practice. That person can be anyone authorized by the practice to file the report. The information about each Beneficial Owner can either be entered online by the Company Applicant, which includes the uploading of a copy of each individual’s government document, or each Beneficial Owner can apply for his or her own FinCEN ID. The Company Applicant then only has to enter the ID numbers into the BOIR.
On December 3, 2024, a US District Court in Texas issued a temporary nationwide injunction suspending any requirement to file the BOIR. An appeal was then filed by the FinCEN challenging the decision. According to Forbes Magazine, “The court is expected to move swiftly to either uphold the injunction, modify its scope, or overturn it, potentially reinstating the CTA’s reporting requirements of the December 31, 2024 deadline.”
Given the uncertainty surrounding this filing requirement, practices will have to decide how to proceed. The FinCEN website has useful information to help practices determine whether they need to file, who should be considered a Beneficial Owner, and how to complete the BOIR. It includes this alert following the Texas ruling:
Please note that beneficial ownership information reporting requirements have been affected by a recent federal court order. The Department of the Treasury is appealing that order. In the meantime, reporting companies are not currently required to file a BOIR and are not subject to liability if they fail to do so while the applicable order remains in force.
However, reporting companies may still opt to file a BOIR.
This article provides a short overview to make practices aware of the law, but it should not be relied on as legal guidance in this important matter. Practices should be sure to consult with their professional legal or financial advisors to be sure they are in compliance with the law.