As the January 1, 2025 deadline for the Corporate Transparency Act (CTA) approaches, hotel owners, developers, and investors should prepare for the new federal requirements for business transparency.
Under the CTA, which took effect on January 1, 2024, certain businesses must submit detailed reports about their ownership structures, known as beneficial ownership information (BOI Reports), to the Financial Crimes Enforcement Network (FinCEN).
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Failure to comply can result in fines of up to $10,000, making timely action crucial for avoiding penalties.
Key CTA requirements for hotels
The CTA, which became effective on January 1, 2024, introduces extensive federal disclosure obligations for most businesses that do not qualify for an exemption, regardless of when they were formed.
The law mandates that these entities report detailed ownership information to FinCEN, which will disclose it to various federal and state agencies, including the IRS.
The new rules aim to enhance transparency and prevent money laundering by providing clear insight into who owns and controls U.S.-based companies.
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By GlobalDataFor hotels, this means that the beneficial owners – individuals who directly or indirectly control at least 25% of the business – must be reported, alongside those responsible for the creation of the company, known as “company applicants.”
According to hospitality attorneys JMBM’s Taxation, Trusts & Estates Department, “The CTA introduces significant transparency obligations that all hotel operators and investors must understand to avoid substantial penalties.” Any changes to this ownership information must be updated within 30 days.
Reporting deadlines for hotel companies
The deadline for hotels and other reporting companies formed or registered before January 1, 2024, to submit their BOI Reports is January 1, 2025. New companies formed in 2024 must file their reports within 90 days of receiving notice that their registration is effective.
“It is essential that hotels formed in 2024 take immediate steps to comply with the new filing requirements,” says the Taxation, Trusts & Estates Department. Companies formed after January 1, 2025, must submit their reports within 30 days of registration.
Hotels also need to be aware that they must file updated reports if there are any changes to previously reported ownership details, such as changes in company name or address. “Failure to file updated reports within the required timeframe can lead to penalties,” adds JMBM’s legal team.
Who must report under the CTA?
The CTA defines a “reporting company” as a corporation, limited liability company, or any similar entity formed by filing documents with a state authority.
This includes non-U.S. companies that register to do business in the U.S. A reporting company must file a BOI Report containing details of both the company applicants (those who formed or registered the entity) and its beneficial owners.
For beneficial owners, the CTA requires detailed information including full legal names, dates of birth, residential addresses, and identification numbers. “Any individual who exercises substantial control over a company or owns 25% or more of its shares must be disclosed,” says JMBM’s legal advisors.
Certain exemptions apply, such as for large operating companies, which must meet specific criteria including having 20 full-time employees in the U.S. and $5 million in gross receipts. However, smaller hotels and those with more complex ownership structures are unlikely to qualify for exemptions and must adhere to the new reporting requirements.
Penalties for non-compliance
The CTA imposes strict penalties for non-compliance.
Civil penalties can reach $500 per day for failure to file, while willfully providing false or incomplete information can result in criminal penalties, including fines of up to $10,000 and possible prison sentences of up to two years.
“The penalties under the CTA are severe, and non-compliance is not an option for hotel companies,” emphasises the JMBM legal team.
As the deadline nears, it is essential for hotel operators and investors to assess their compliance with the CTA. Early action will ensure adherence to the new regulations, avoiding costly fines and legal complications down the road.
