A new filing requirement took effect January 1, 2024, which may affect you if you own a company now or in the future. A federal law known as the Corporate Transparency Act (CTA) requires companies to file reporting company information and beneficial ownership information) (BOI) with the Department of Treasury’s Financial Crimes Enforcement Network (FinCen) with a goal to accumulate a database of information about the owners and people in control of entities conducting business in or accessing United States’ markets. Although CTA was developed to support national security, the reality is that millions of businesses face a new compliance requirement and administrative burden. This filing is NOT part of the Internal Revenue Code and not included with an income tax return. Because the information required to be reported to FinCen relates to legal matters including ownership and control over reporting entities, BST is unable to participate in the preparation and filing of the required compliance filings.
There are civil penalties for reporting obligations such as $500 per day for late reporting and up to $10,000 and imprisonment for up to two years for purposefully providing false information, failing to provide complete information, or failing to update information.
The three key elements to BOI reporting are: who must file, when the initial report is due, and what information is included in the report. The following information is intended to provide a general overview of the new requirements.
Who must file?
The law will apply to almost all domestic multiple and single member limited liability companies (LLCs), corporations, limited partnerships, business trusts, and other closely held businesses created by filing a document with a secretary of state or similar office. It also applies to certain foreign entities registered to do business in the United States. Sole proprietorships that do not operate within an entity are generally not considered a reporting entity as long as they were not created by the filing of a document with a secretary of state or similar office.
The rules for trusts are complex. In general, a domestic entity such as a statutory trust, business trust or foundation is a reporting company if it was created by filing a document with a secretary of state or similar office. However, state laws vary on whether these trusts must register.
There are 23 types of entities that are exempt from BOI reporting requirements. Many of the exemptions are for entities subject to significant reporting and regulatory requirements, such as banks, brokers or dealers in securities, insurance companies, and tax-exempt entities. There is also an exemption for large operating companies and inactive entities.
When is the initial report due?
The initial due date depends on when the company was created or registered to do business in the United States. There are currently no extensions available.
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For a reporting company created or registered before January 1, 2024, the due date is January 1, 2025.
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For a reporting company formed or registered in 2024, the due date is 90 days after creation or registration.
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For a reporting company formed in 2025 or later, the due date is 30 days after creation or registration.
If previously reported information is inaccurate, corrected reports are due within 30 days after the company becomes aware or has reason to know of the inaccuracy.
If there is a change to the previously reported information about the reporting company or its beneficial owners, updated reports are due within 30 days after the change.
What information is included in a BOI report?
The reporting entity must include the entity’s legal name and “doing business as” names, principal place of business address, taxpayer identification number, jurisdiction of formation, and the identity of any beneficial owners. Companies formed on or after January 1, 2024, will also have to include information regarding the company applicants.
A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control or (2) owns or controls at least 25% of the ownership interests. In general, the rules require certain information for each owner OR person who exercises control of the company. There are four different ways an individual can exercise substantial control, including being a senior officer, having authority to appoint or remove officers, being an important decision maker or any other form of substantial control. Detailed information must be provided for each beneficial owner including their full legal name (including middle name), date of birth, home address, and a photocopy of the individual’s U.S. passport or state driver’s license. In most instances, the information must be updated any time the information changes meaning a change in address or identification renewal will trigger an amended filing due within 30 days of it. Information is filed electronically through the FinCen’s website at https://boifiling.fincen.gov.
As stated previously, the filing through the FinCen website is not part of the tax return engagement and it is solely your responsibility to comply with CTA. FinCEN’s guidance states that they expect that many, if not most, reporting companies will be able to submit their BOI information using the guidance issued. There is no cost to file directly on the FinCen website. Should you require assistance with the reporting obligations, other alternatives would be seeking advice from legal counsel or software solutions that charge a fee but offer a guided process, such as CT Corporation’s Beneficial Ownership Platform.
Detailed CTA information, including FAQs can be found on the FinCen website: https://www.fincen.gov.
The above information outlines CTA enacted at the federal level. On December 23, 2023, Governor Hochul signed the LLC Transparency Act to create a New York database of the beneficial owners of Limited Liability Companies. No later than January 1, 2025, existing covered LLCs must file to report the BOI information OR file to declare that an exemption applies. Similarly, California legislature has also introduced legislation.
