Beginning January 1, 2024, many businesses are 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. As part of the CTA, certain entities must report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN).
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 U.S. law enforcement combat money laundering, the financing of terrorism, and other illicit activities.
Below are details regarding this new reporting requirement. This information is meant to be general-only and should not be applied to your specific facts and circumstances without consulting legal counsel.
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, or any similar entity created by the filing of a document with a Secretary of State or 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. Examples would be general partnerships and sole proprietorships.
Foreign companies required to report under the CTA include corporations, limited liability companies, or any similar entity that is formed under the law of a foreign country and registered to do business in any U.S. state or tribal jurisdiction by filing a document with a Secretary of State or similar office.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, certain 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:
- Employ more than 20 people in the U.S.;
- Have reported U.S. sourced gross revenue (or sales) of over $5M on the prior year’s tax return; and
- 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 ownership interest in the reporting company. There is no limit for the number of beneficial owners reported.
The detailed CTA regulations further define the terms “substantial control” and “ownership interest”.
When must companies file?
There are different filing timeframes depending on when an entity is created/registered or if there is a change to previously reported information.
- Existing entities (created/registered before 01/01/2024) — must file by 01/01/2025
- New entities (created/registered in 2024) — must file within 90 days of creation or registration
- New entities (created/registered after 12/31/2024) — must file within 30 days of creation or registration
- 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 street address of U.S. principal place of business, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).
Information required on the beneficial owners include: their full name, birthdate, residential street address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport). An image of this document must be included.
Additionally, for Companies created on or after 01/01/2024, Company applicants must be included in the report.
The Company applicant is the person who actually files the document that creates or registers the reporting company. Company applicants must provide the same information that is required of beneficial owners, except that the business address should be used. The address used for company applicants does not have to be in the United States. Because of the difficulty in tracking down information about company applicants for reporting companies that have been in existence for a number of years, reporting companies formed or registered before 2024 do not have to supply BOI for their company applicants.
How to File/Report
Filing of reports must be completed electronically. FinCEN’s e-filing portal, available at https://boiefiling.fincen.gov/, provides two methods to submit a report: (1) by filling out a web-based version of the form and submitting it online, or (2) by uploading a completed PDF version of the BOI report. Some third-party service providers may also offer the ability to file the BOI report through their software. The person who submits the BOI report will need to provide their name and email address to FinCEN. There is no fee for filing the report.
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.
What this means for clients of Gilliam Bell Moser
Although certain information pertaining to BOI reporting requirements may overlap with information we request for tax preparation or other services, BOI reporting under 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. BOI reports will not be filed with the IRS, but with the FinCEN, another agency of the Department of Treasury. As such, providing BOI related services may constitute legal advice and Gilliam Bell Moser is unable to prepare these forms or assist clients in preparing these forms.
We strongly advise that you familiarize yourself with these new rules and consult legal counsel as soon as possible to determine how BOI reporting requirements will impact your business. For more information, please visit the BOI section of the Financial Crimes Enforcement Network’s (FINCEN) website at: https://www.fincen.gov/boi.
