The New Year’s crystal ball wasn’t the only massive thing dropped at midnight of December 31, 2023. A new filing requirement under the Corporate Transparency Act (CTA) also became effective on January 1, 2024.
Beginning January 1, 2024, CTA requires millions of entities to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury. This reporting is called Beneficial Ownership Information (BOI) Reporting.
Reporting Companies
Companies required to report are called reporting companies. A reporting company can be domestic or foreign. A reporting company is an entity that is formed by filing a document (e.g. articles of incorporation or organization) with a secretary of state office or similar office, which includes (but are not limited to):
- LLCs
- Corporations
- Limited partnerships
- Limited liability partnerships
There are 23 categories of exemptions provided in the final regulations – included are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. The reasons for this exemption is that these entities are already regulated under government authorities.
Notably, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 people in the U.S.;
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
- Be physically present in the U.S.
Beneficial Owner
A reporting company must identify its beneficial owners for BOI reporting. This information goes to the FinCEN Beneficial Ownership Secure System (BOSS) database for use by law enforcement, the IRS, and other government agencies. Data in BOSS is not disclosed to the public.
A Beneficial Owner is an individual who either directly or indirectly:
(1) exercises substantial control over the reporting company, or
(2) owns or controls at least 25% of the reporting company’s ownership interests
Substantial control is defined broadly. It an individual is exercising substantial control if s/he falls into any of the categories below:
- The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
- The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
- The individual is an important decision-maker for the reporting company.
- The individual has any other form of substantial control over the reporting company. (catch-all)
An Ownership interest is generally an arrangement that establishes ownership rights in the reporting company. Examples of ownership interests include:
- equity, stock, or voting rights
- Capital or profit interest
- Convertible instruments
- Option or privilege
- any other mechanism used to establish ownership.
Information for BOI Reporting
Beneficial owners or company applicants must report:
- name
- birthdate
- address
- 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.
Reporting 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).
Reporting Deadlines
January 1, 2025 – A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial BOI report.
Within 90 Days – A reporting company created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective.
Within 30 Days – A reporting company created or registered on or after January 1, 2025, will have 30 calendar days to file after receiving actual or public notice that its creation or registration is effective.
Within 30 Days – Any corrections, changes, or updates to the originally filed BOI reporting must be reported no later than 30 days after a reporting company became aware of or had reason to know errors or inaccuracy on the filing.
Penalties for Noncompliance
Civil penalties are up to $500/day that a violation continues.
Additionally, criminal penalties include a $10,000 fine and/or up to two years of imprisonment for willful noncompliance such as willful failure to file a BOI report or willful filing of a false BOI report.
Furthermore, if any person knowingly discloses or inappropriately uses BOI they may be fined $500 per day up to $250,000 and imprisoned for up to 5 years.
Next steps
The CTA BOI reporting is intended to help the U.S. government combat money laundering, financing of terrorism, tax fraud, and other illegal activities. Newly formed companies, persons or other applicable entities will need to determine if the BOI reporting is required of them, and if so, must implement action items and start gathering necessary information for reporting. Companies in existence prior to January 1, 2024 still have time until January 1, 2025, but they should evaluate the requirements and start developing processes to address the BOI reporting. All companies should continue to monitor for updates from FinCEN regarding the reporting requirements and processes each year.
Contact us today if you have any questions regarding the CTA BOI reporting.
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