Corporate Transparency Act — Beneficial Ownership Information Reporting Requirement
To Our Clients,
Starting January 1, 2024, a significant number of businesses will be 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. 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.
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 report filing on certain types of financial transactions. Under the CTA, BOI reports will be filed with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.
Below is information for this new reporting requirement. This information is general only and should not be applied to your specific facts and circumstances without consultation with competent legal counsel and/or another retained professional adviser.
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 entities required to report include corporations, limited liability companies (LLCs) and 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.
• Foreign entities 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.
• Domestic or Foreign entities not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions, including publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and that 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:
a) Employ more than 20 people in the U.S.,
b) Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
c) 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 if they have no ownership interest in the reporting company. A trustee, grantor or beneficiary of a trust may also be a beneficial owner of any reporting company owned by the trust.
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 or registered in 2024 must file within 90 days. After 2024, new entities have 30 days to file.
• Existing entities created or registered before January 1, 2024, must file by January 1, 2025.
• In 2024 reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports must file changes within 30 days.
What sort of information is required to be reported?
Companies must report and keep current with 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 is also required. The types of information that must be provided and kept current for the beneficial owners include the owner’s legal name, residential address, date of birth and unique identifier number from a nonexpired passport, driver’s license or state identification card along with an image of such document. In 2024, changes to a beneficial owner’s address or renewal of driver’s license, passport or other identifying document must be reported within 90 days. All individuals that could become reportable should strongly consider getting a FinCEN Identifier to minimize the access of their confidential information. A FinCEN Identifier is a unique number that FinCEN will issue upon request after receiving required information. Although there is no requirement to obtain a FinCEN Identifier, doing so can simplify the reporting process and allows entities or individuals to quickly reference identifying information previously provided to FinCEN.
How do I file BOI reports?
BOI reports must be filed 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. These penalties can be imposed against the beneficial owner, the entity, and/or the person completing the report. For more information about the CTA, visit http://www.fincen.gov/boi-faqs.
Who can access the beneficial ownership information?
FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement. Financial institutions will have access to beneficial ownership information in certain circumstances, with the consent of the reporting company. Those financial institutions’ regulators will also have access to beneficial ownership information when they supervise the financial institutions.
To prepare for this reporting, suggest you compile a list of all entities where either: (1) you may be responsible for reporting company information to FinCEN; or (2) where you may be considered to be a beneficial owner. Should you wish for us to review and help plan for your specific business reporting, it is a separate engagement from our normal tax preparation services. If you wish to engage us to assist with CTA reporting, please confirm by return email and we will have you sign a separate FinCEN engagement letter. The separate FinCEN engagement letter will contain terms and conditions which will apply to any engagement between you and Frank, Rimerman regarding your CTA reporting.
FRANK, RIMERMAN + CO. LLP