Your Financial Maven Blog Posts
Beneficial Ownership Reporting Requirement
Please note that this Blog post has been updated from it's original publish date of October 31, 2023 to reflect additional information.
It is important to be aware of potential new filing requirements if you own a small business or if you are thinking of starting a small business as it relates to the Beneficial Ownership Information Reporting Requirement. Below is information relating to this reporting requirement that is now open as of January 1, 2024.
The Corporate Transparency Act (“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. Visit https://www.fincen.gov/boi for all kinds of information. Below is highlights of the BOI and to consider as the implementation period of January 1, 2024 approaches:
- 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 23 categories of exemptions. You can find that information as part of the BOI FAQs here: https://fincen.gov/boi-faqs.
-
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 time frames 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.
- Understand your reporting requirement: 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. As always, planning ahead can help you comply and understand your filing obligations.
NOTE: You have sole responsibility for your compliance with the CTA, including its BOI reporting requirements and the collection of relevant ownership information. Information regarding the BOI reporting requirements can be found at the Fincen website as noted above. Consider consulting with legal counsel if you have questions regarding the applicability of the CTA’s reporting requirements and issues surrounding the collection of relevant ownership information.
I decided to do my BOI reporting and needless to say, the system is overloaded with a lot of small business owners trying to follow the requirement. Please have patience and remember if your small business was established prior to 2024, you have until January 1, 2025 to meet this new reporting requirement.
__________________________________________________________________________________________________________________________________
