Starting in 2024, the Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information (BOI) may require you to disclose information about your company’s ownership. This reporting requirement applies to both newly formed and existing entities unless your company meets a specific exemption. The penalties for non-compliance can be significant so we advise you to review the guidance supplied by the U.S. Government to ensure your compliance. You can access FinCEN resources by clicking on any of the links in this article.
The Corporate Transparency Act (CTA) was enacted January 1, 2021, as part of the National Defense Authorization Act, representing the most significant reformation of the Bank Secrecy Act and related anti–money laundering rules since the U.S. Patriot Act. The CTA is intended to address and guard against money laundering, terrorism financing, and other forms of illegal financing by mandating certain entities, primarily small and medium size businesses, report “beneficial owner” information to FinCEN.
FinCEN has a listing of Frequently Asked Questions on their website we encourage you to visit. There will be updates to the FAQ as the filing date approaches and more questions arise about the reporting process.
When are entities required to file?
- Reporting companies created or registered between January 1, 2024, and December 31, 2024, have 90 days to comply.
- Reporting companies created before January 1, 2024, will have until January 1, 2025, to comply.
- Reporting companies created on or after January 1, 2025, will have 30 days from date of registration.
What entities are subject to the new CTA reporting requirements?
Entities required to comply with the CTA (“Reporting Companies”) include corporations, limited liability companies (LLCs), and other types of companies that are formed by a filing with a Secretary of State or equivalent official state agency. The CTA also applies to non U.S. companies that register to do business in the U.S. through a filing with a Secretary of State or equivalent official.
There are exceptions which may exempt your company from the BOI filing requirement under the CTA. These exceptions are available for entities that are regulated by federal or state governments beyond the filing of tax returns or annual reports. There are twenty-three types of entities that are exempt from the reporting requirements. Carefully review the qualifying criteria before concluding that your company is exempt.
One such exception is for “large operating companies” defined as companies that meet all three of the following requirements:
- Employ at least twenty full-time employees in the U.S.
- Gross revenue (or sales) over $5 million on the prior year’s tax return from U.S. sources
- An operating presence at a physical office in the U.S.
We strongly encourage you to review Chapter 1.2 of the Small Entity Compliance Guide provided by FinCEN to determine if your entity meets any of the twenty-three listed filing exceptions.
Who is a “beneficial owner” of a Reporting Company?
A beneficial owner is any individual who, directly or indirectly, exercises “substantial control” or owns or controls at least 25% of the company’s ownership interests.
CTA regulations provide a much more expansive definition of “substantial control” than in the traditional tax sense, so many companies may need to seek legal guidance to determine who the deemed beneficial owners are within their organization. Refer to Chapter 2 of the Small Entity Compliance Guide for help determining who has “substantial control”.
Where is the report filed?
The BOI reporting will be available on the FinCEN BOI website on January 1, 2024.
What to do if you need help?
The Corporate Transparency Act and Beneficial Ownership Information reporting is not a part of the U.S. tax code. The assessment and application of the requirements set forth in the regulations, including but not limited to the determination of beneficial ownership interest, may necessitate the need for legal guidance and direction.
As Certified Public Accountants we are not able to offer legal guidance or issue any legal determination as to whether an exemption applies specifically to your entity or whether legal relationships constitute beneficial ownership. We can however direct you to the resources available for you to make this determination on your own or refer you to legal counsel that can assist you.
If you are forming any entities in 2024, we strongly encourage you to discuss the reporting requirements with your legal counsel to ensure you meet the 90-day requirement with FinCEN. You should also make a list of your existing entities to review for filings required before January 1, 2025.
The penalties for willfully violating the CTA’s reporting requirements include, civil penalties of up to $500 per day that a violation is not remedied, a criminal fine of up to $10,000, and/or imprisonment of up to two years.
For additional information regarding the beneficial ownership reporting requirements visit the FinCEN website and Subscribe to FinCEN Updates.