Beneficial ownership information reporting
Beneficial Ownership Information Reporting
As part of the Corporate Transparency Act (CTA), a rule went into effect January 1, 2024, requiring millions of domestic and foreign companies to report beneficial ownership information (BOI) to the U.S. Department of the Treasury. The purpose of the BOI reporting is to help U.S. law enforcement combat money laundering, financing of terrorism and other illicit activity.
The BOI reports are separate from tax return filings and are not filed with the IRS. Instead, the beneficial ownership information is reported to the Financial Crimes Enforcement Network (FinCEN), another agency of the U.S. Department of Treasury.
Who is required to file a BOI report?
Any domestic entity that was formed by filing registration documents with any U.S. state’s Secretary of State or a similar office (or a foreign entity that is registered to do business in any U.S. state) is considered a “reporting company” and is required to file a BOI report with FinCEN, unless it meets one of the exceptions outlined below.
Note that most single-member LLCs considered disregarded entities for tax purposes would be subject to the BOI reporting requirements. However, many small businesses organized as sole proprietorships or general partnerships may be exempt from the new reporting rules, since oftentimes they are not required to file registration documents with a U.S. state’s Secretary of State’s office.
Who is exempt from BOI reporting?
The rules outline 23 types of entities exempt from BOI reporting requirement. These exceptions include, among others, certain financial services firms, publicly held companies, charities and political organizations, or “large operating companies”. A large operating company is defined as an entity that meets all of the following criteria: a) employs more than 20 full-time employees in the US, b) reported more than $5 million in sales on the prior year’s tax return, and c) has a physical office in the U.S.
See FinCEN’s FAQs for a full list of exemptions. The FinCEN’s Small Entity Compliance Guide includes checklists for each of the 23 exemptions that may help determine whether your company qualifies for an exemption.
Who is considered a beneficial owner?
A beneficial owner is an 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. Certain individual beneficial owners, such as minor children, are exempt from reporting.
FinCEN expects that every reporting company will be substantially controlled by one or more individuals, and therefore that every reporting company will be able to identify and report information for at least one beneficial owner to FinCEN.
Making the determination of who meets the definition of a “beneficial owner” may present a challenge. The FinCEN’s Small Entity Compliance Guide provides additional information to help navigate these rules.
What information must be reported?
For each reporting company: full legal name and any trade name or DBA, street address of the principal place of business, the jurisdiction of formation or registration, and the taxpayer identification number.
Reporting companies created after January 1, 2024 must also report information about “company applicants”. A company applicant is an individual who files or is responsible for filing the document that creates the company.
For each beneficial owner and company applicant: the individual’s name, date of birth, residential address, a unique ID number, and image of an ID document, such as unexpired passport or driver’s license. An individual can obtain a “FinCEN ID,” which can then be used by the reporting company in lieu of providing the individual’s required information.
When are initial BOI reports required to be filed?
Reporting companies in existence as of January 1, 2024 have until January 1, 2025 to file their initial BOI reports. Reporting companies created during the 2024 calendar year must file their initial BOI reports within 90 days of the company’s formation. Reporting companies created after January 1, 2025, will have 30 days following the company’s formation to file their initial BOI reports.
Is this a one-time filing?
While there is no ongoing reporting requirement after an initial BOI report has been filed with FinCEN, reporting companies have 30 days to report changes to the information in the previously submitted BOI reports and 30 days to correct inaccurate information after becoming aware of the errors or the inaccuracies. Examples of such changes include but are not limited to: reporting company’s name or address change, changes in who is considered a beneficial owner of the reporting company, beneficial owner’s name or residential address changes, new passport or driver’s license information.
If a reporting company used a FinCEN ID to report the beneficial owner’s information in a BOI report, the beneficial owner will be responsible to update the information contained in the FinCEN ID within 30 days of the change.
How to file a BOI report?
Reporting companies can file BOI reports electronically through a secure filing system on FinCEN’s website. There is no filing fee.
What happens if my company is required to file a BOI report but fails to do so?
Willful violation of BOI reporting requirements can result in civil penalties of up to $500 per day as well as criminal penalties of up to two years in prison and a fine of up to $10,000.
To prepare for compliance with these rules, you should review and revise your company’s internal policies to ensure that you maintain up-to-date beneficial ownership information and put procedures in place to report changes to FinCEN timely to avoid penalties.
The information contained in this article is for informative purposes only and should not be relied on when making any business, legal, or other decisions. This information may be updated without notice and/or may not contain the most current information that is available related to this topic.