In 2022, the Department of Treasury's Financial Crimes Enforcement Network (FinCEN) issued new regulations related to the Corporate Transparency Act (CTA), one of the main anti-money laundering laws in the United States.
What is the purpose of the BOI reporting requirements? According to Congress, federal legislation providing for the collection of beneficial ownership information is needed to protect national interests and better enable efforts to counter illegal activity, such as money laundering, financing terrorism, tax fraud, and other illegal acts. The FinCEN will collect essential information to also protect the U.S. financial system from illicit use by providing essential information to national security, intelligence, and law enforcement agencies.
Who is required to file? Both Domestic and Foreign reporting companies will be required to report and file their BOI to FinCEN. A domestic reporting company includes a corporation, an LLC, or any entity created by filing documents with a Secretary of State or other similar official.
A foreign reporting company includes a corporation, LLC, or any other entity created under a foreign country's law, and registered to do business in the U.S. by filing documents with a Secretary of State or other similar official.
Who is exempt from filing? The CTA provides a list of 23 specific exemptions. Most of the exemptions are for entities that are already subject to existing federal and state reporting regulations. Exempt entities include, for example, publicly traded companies and other entities that file reports with the SEC, banks, credit unions, money services businesses, securities brokers and dealers, tax-exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, accounting firms, and certain inactive entities formed before January 1, 2020. Most notably, there is an exemption for "large operating companies" defined as an entity that has (1) 20 or more full time employees, (2) operating presence with a physical office in the U.S., and (3) has filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales. For a full list of exemptions please visit https://fincen.gov/boi-faqs.
What information is required? Any company required to file the BOI report must disclose:
- Basic information including legal name and any trade name or DBA, address, jurisdiction of formation, and Tax Identification Number (TIN).
- For each beneficial owner or company applicant include their name, date of birth, and address. An identifying number from a driver's license, passport, or other approved document, as well as an image of the identification document is also required to be reported.
Who qualifies as a beneficial owner or company applicant?
A beneficial owner is anyone who has "substantial control" over the company directly or indirectly, or who controls at least 25% of ownership interests directly or indirectly. "Substantial control" refers to the power an individual has over a company regardless of their ownership interests. An individual may have "substantial control" if they have substantial influence in directing, determining, or exercising important decisions the company makes. A company applicant is either:
- the individual who files the document creating/registering the company, or
- the individual responsible for directing the filing of the document.
Reporting companies formed before January 1, 2024 do not have to report company applicants. Companies formed after January 1, 2024 are required to report company applicants.
Who will have access to the information contained in the BOI report? FinCEN is authorized to disclose BOI to a limited group of requestors including (1) federal agencies engaged in national security, intelligence and law enforcement, (2) state law enforcement agencies with a court order, (3) the Treasury Department, (4) financial institutions with the company's consent, (5) government regulators of financial institutions, and (6) certain foreign authorities requesting information through a U.S. agency.
When is the filing deadline? The BOI reporting requirement will take effect January 1, 2024 and will be the first day companies can file their reports. Specific due dates for the BOI reports are listed below:
- Existing companies formed before January 1, 2024 will have one full year, until January 1, 2025 to file.
- New companies formed on or after January 1, 2024 will have 30 calendar days after receiving notice the registration is effective to file their reports.
- Updated reports reflecting a change in reported information and corrected reports correcting inaccurate reported information are due within 30 days after the change or inaccuracy is discovered.
Penalties for failure to file or reporting violations can include civil penalties of up to $500 per day the violation continues, or criminal penalties of fines up to $10,000 and potential imprisonment for up to two years.
For more information and questions related to the new CTA beneficial ownership reporting requirements, please reach out to the HLB Gross Collins International Tax Team.