Many small business entity owners have a new compliance requirement to adhere to beginning next year. In an effort to better prevent money laundering, tax evasion, and other illicit financial crimes, new legislation and reporting obligations will require certain business entities to step up their transparency and disclose ownership information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
This new reporting requirement is expected to take effect as of January 1, 2024, and is anticipated to apply to millions of businesses. Continue reading to find out who is required to submit a Beneficial Ownership Information (BOI) report, when the reports need to be filed, and why this new obligation is being implemented.
The Corporate Transparency Act (CTA)
Enacted on January 1, 2021 as part of the Anti-Money Laundering Act of 2020, the Corporate Transparency Act (CTA) authorizes FinCEN to collect uniform ownership information from corporations, limited liability corporations (LLCs), and other entities registered to do business in the United States.
The disclosed information will be stored in a secure database, accessible only to national security agencies and law enforcement to aid in investigations to uncover and prevent criminals, terrorists, and corrupt individuals from hiding illicit money or property in the U.S. The purpose of increasing the visibility of entity ownership is that money launderers, criminals, and those participating in illicit financial activities take advantage of anonymity and hide behind LLCs and closely-held small businesses, misusing them as a “shell” to carry out illegal activities, transactions, and crimes.
New Beneficial Ownership Information (BOI) Reporting
Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control at least 25% of the company’s ownership interests. Prior to the CTA, the disclosure of entity ownership was a state by state decision and that information remained with state authorities. Enacting this broad requirement will enhance openness in the U.S. financial system as reporting companies will now have to submit detailed statements on their domestic and foreign beneficial owners’ names, addresses, and other identifying details. Eligible companies will have to disclose individuals who have direct or indirect substantial control over the reporting company.
FinCEN has published an FAQ page at fincen.gov/boi-faqs with detailed information on the new reporting requirements. Following is an overview of the most common questions.
The Who, What, When of BOI Reporting [PDF]
Who Does BOI Reporting Impact?
The “reporting companies” will be required to report their beneficial ownership information. There are two types of reporting companies — domestic reporting companies and foreign reporting companies.
A domestic reporting company is defined as:
- a corporation,
- a limited liability company, or
- any other 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.
A foreign reporting company is any entity that is:
- a corporation, limited liability company, or other entity formed under the law of a foreign country, AND
- registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.
Who is Excluded from BOI Reporting?
The CTA exempts 23 types of entities from the beneficial ownership information reporting requirement. This list includes:
- Large operating companies with at least 20 full-time employees, over $5,000,000 in gross receipts or sales (on a filed tax return), and an operating presence at a physical office within the United States.
- Publicly traded companies that report to the SEC.
- Certain tax-exempt entities such as churches, charities, and nonprofit organizations.
- Financial entities that report to governing authorities such as banking institutions, credit unions, investment advisors, venture capital funds, public accounting firms, and insurance companies.
- Regulated public utilities.
- U.S. government authority.
- Subsidiaries of exempt entities.
Required Reporting Details
Company information on the report should contain:
- Entity’s legal name;
- Any trade or “doing business as” (d/b/a) names;
- Federal Taxpayer Identification Number;
- The current street address of its principal place of business if that address is in the United States, or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters);
- State of formation;
- Type of filing (initial, correction, or update)
Individual information for beneficial owner or company applicants should contain:
- The individual’s name, date of birth, and address.
- A unique identifying number from an acceptable identification document (a non-expired passport, valid driver’s license, etc.) along with an image or scanned copy of the document.
- The name of the state or jurisdiction that issued the identification document.
- Residential street address for beneficial owner.
- Residential or business street address for company applicant(s) (depending on their role).
Reporting Filing Dates
- If the entity was created or registered before January 1, 2024:
- An existing reporting company will have until January 1, 2025 to file its initial beneficial ownership information report.
- This reporting company only needs to provide information about itself and its beneficial owners. As an existing reporting company, it does not need to provide information about its company applicants.
- If the entity was created or registered on or after January 1, 2024:
- For new companies created in 2024 only, the company will have 90 days to file its initial beneficial ownership information report.
- If the entity was created or registered on or after January 1, 2025:
- The new reporting company will have 30 days to file its initial beneficial ownership information report. This 30-day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
- This reporting company will need to report information about itself, its beneficial owners, and its company applicants.
- There can be up to two individuals who qualify as company applicants: (1) the individual who directly files the document that creates, or first registers, the reporting company; and (2) the individual that is primarily responsible for directing or controlling the filing of the relevant document. No reporting company will have more than two company applicants.
- Updated and corrected reports on an ongoing basis:
- After the initial submission, updated and corrected reports are due to FinCEN within 30 calendar days of the ownership change or since becoming aware of an error.
Defining Beneficial Owner
A beneficial owner is any individual who, directly or indirectly, either exercises “substantial control” over the company or owns or controls at least 25% of the company’s ownership interests.
Indirect ownership or control of a company or its ownership interests may include the following:
- Joint ownership with one or more other persons
- Through another individual acting as a nominee, intermediary, custodian, or agent
- As trustee, grantor/settlor, or beneficiary of a trust
- Through ownership or control of one or more intermediary entities that separately or collectively own or control ownership interests of the reporting company
The following are not considered beneficial owners of a reporting company:
- Minor children (however, the reporting company must report information regarding the minor child’s parent or legal guardian)
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual (in which case that individual would be the beneficial owner)
- An employee of the reporting company, acting solely as an employee, whose substantial control over or economic benefits from the entity are derived solely from the employment status (provided that the person is not a senior officer of the entity)
- An individual whose only interest in a reporting company is a future interest through a right of inheritance
- A creditor of the reporting company
Failure to Comply
The CTA provides civil penalties of $500 per day, up to $10,000 , and/or imprisonment for up to two years for report violations. This includes failure to file, inaccurate reports, and willingly providing false information. The penalties increase for unauthorized disclosure, especially if found in conjunction with illegal activities involving in excess of $100,000 in a 12-month period.
Next Steps
As of this date of publication, there is nothing you have to do. The U.S. Treasury and FinCEN are currently developing a new system to securely accept and store the reports. BOI reports can be submitted no earlier than January 1, 2024, when FinCEN expects to have their system up and running. If you are already an established business, you will have until January 1, 2025 to file, so there will be time to comply. In the meantime, monitor FinCEN’s communications for any program updates to prepare for this looming deadline.
Consult with your Advisor or Attorney
Alloy Silverstein is here to help you be compliant. The AICPA and other nationwide groups are currently trying to get the word out about this new requirement, so by reading this post today, you are already ahead of the game. Turn to your CPA or attorney for specific guidance on your exact situation.
Summary Infographic on Beneficial Ownership Information Reporting (BOI)
