The New Beneficial Ownership Information Reporting Requirements

Are you ready for the new Beneficial Ownership Information (BOI) reporting requirements implemented by the Corporate Transparency Act (CTA) that will go into effect on January 1, 2024? If you answered no, you are not alone. It is estimated that 80-90% of business owners are not familiar with these new reporting requirements. While as little as 1% are very familiar the filing requirements.

The CTA was enacted on January 1, 2021, and is to be under the administration of the Financial Crimes Enforcement Network (FinCEN) within the Department of Treasury. The BOI reporting requirement was implemented to assist FinCEN in detecting bad actors that partake in drug trafficking, money laundering, hiding other assets, fraud, etc.

When must a reporting entity file?

• Companies created or registered to do business before January 1, 2024, will have until January 1, 2025, to file their initial report. There is a current bill passed by the House (HR 5119) that would extend the initial filing date for existing entities to January 1, 2026. This bill still needs to be passed by the Senate and signed by the President.
• The initial filing date for companies created in 2024 would be 90 days after the entity’s formation / registration with the state agency.
• The initial filing date for companies created after 2024 would be 30 days after the entity’s formation / registration with the state agency. Bill HR 5119 would extend this to 90 days as well.
• Reporting entities that discover an error in a previously filed report or need to update Beneficial Owner information will have 30 days from when the entity becomes aware of the error or the change in information.

What companies are considered a reporting entity?

A reporting company is any foreign or domestic entity that has filed formation documents with a U.S. state, usually the Secretary of State, or Indian Tribe. This would include, but not limited to, the following types of entities. A limited liability partnership (LLP), business trusts, limited partnership (LP), corporations, and limited liability companies (LLC).

Is my company exempt from the BOI reporting requirement?

A reporting company that meets one of the 23 listed exemptions is not required to report their BOI information. Please refer to the link at the end of this blog to the FinCEN website for more information on the 23 exemptions. Common entity exemptions are, banks, credit unions, public accounting firms, tax-exempt entities, and large operating companies. A large operating company is defined as an entity with more than 20 full-time employees, a physical office in the U.S., and more than $5M of U.S. sourced revenue.

Who is a beneficial owner?

A beneficial owner is any individual who directly or indirectly:

• Owns or controls at least 25% of the ownership interest of a reporting company, or
• Exercises substantial control over a reporting company.

Substantial control is loosely defined as a senior officer (i.e., CEO, CFO, COO, general counsel), individual that has authority to appoint or remove a senior officer (i.e., board of directors), important decision maker, or any other individual with substantial control over the reporting company. Each reporting company will have at least one beneficial owner. But there is no limit to the number of beneficial owners a reporting company needs to include. Any individual that fits the definition of a beneficial owner should be included in the BOI reporting.

What type of information is required to be reported?

• Reporting Company:
  • Full legal name
  • Any trade name(s)
  • Current U.S. address (cannot us a P.O. Box)
  • Jurisdiction of formation (state, foreign, tribal)
  • IRS tax id number (TIN)
• Beneficial Owner & Company Applicant:
  • Full legal name
  • Date of birth
  • Current address
  • Unique identifying number and issuing jurisdiction from, and image of, one of the following (US passport, state drivers license, identification issued by state, local government, or tribe).

Who is responsible for meeting the BOI reporting requirements?

The responsibility for understanding the BOI requirements and filing the appropriate reports resides with the reporting entity.

Failure to file timely, accurate, and complete BOI reports can result in steep penalties for willful violations. Civil penalties are up to $500 a day. Plus, the criminal penalties can include fines up to $10,000 and up to two years in prison.

For more information on the BOI reporting requirements, please visit the FinCEN website at www.fincen.gov/boi or consult with your legal counsel.  

Interested in more Tax Legislation articles? Click here to read more