As of January 1, 2024, many companies were required to report information to the U.S. government about who ultimately owns and controls them. It’s the result of a 2021 law, the Corporate Transparency Act—or CTA—which requires reporting companies to file reports with FinCEN, the Financial Crimes Enforcement Network.
FinCEN has been rolling out guidance—including new FAQ information posted as of July 8, 2024. And, the CTA has been challenged in court. Here’s what you need to know.
Who has to report?
Companies required to report are called reporting companies. Your company may be a reporting company and need to report information about its beneficial owners if your company is a corporation, a limited liability company (LLC), or other entity created by the filing of a document with a secretary of state or any similar office in the U.S., or a foreign company formed under the law of a foreign country that has registered to do business in the U.S. by filing of a document with a secretary of state or any similar office.
A domestic entity like 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. The specifics of whether certain entity types, such as trusts, require filing a document with the secretary of state or similar office to be created or registered depend on state law.
To help, FinCEN created this chart:
Who does not have to report?
There are several exemptions. In fact, 23 types of entities are exempt from the reporting requirements for beneficial ownership information (BOI). These entities include publicly traded companies, nonprofits, and certain large operating companies. You can check FinCEN’s Small Entity Compliance Guide (updated as of December 2023) for a checklist that may help determine whether your company qualifies for an exemption.
Who is a beneficial owner?
A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company’s ownership interests (examples include shares of equity, stock, voting rights, or any other mechanism used to establish ownership).
What constitutes substantial control?
FinCEN says that an individual can exercise substantial control over a reporting company in four different ways:
- The individual is a senior officer (examples include a president, CEO CFO, COO, or general counsel); OR
- The individual has the authority to appoint or remove officers or a majority of directors (or similar body) of the reporting company; OR
- The individual is an important decision-maker for the reporting company (meaning one who makes decisions about business, finances, and structure); OR
- The individual has any other form of substantial control over the reporting company as outlined in FinCEN’s Small Entity Compliance Guide.
What do I have to report?
The report must identify the company, including its legal name and any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names, as well as the physical address of the company (no post office boxes), jurisdiction of formation or registration, and Taxpayer Identification Number (if a foreign reporting company has not been issued a TIN, include a tax identification number issued by a foreign jurisdiction).
The report must also include four pieces of information about each of its beneficial owners: name, date of birth, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and a scanned image of the document)—that could include a driver’s license or passport.
If a company has to report a company applicant, the report will also include the company applicant’s name, date of birth, address, and an identifying number from an acceptable identification document (and a scanned image of the document), like a passport or U.S. driver’s license. If the company applicant works in corporate formation—for example, as an attorney or corporate formation agent—the reporting company must report the company applicant’s business address. Otherwise, the reporting company must report the company applicant’s home address.
No financial information or details about the business purpose or operation of the company are required.
How do I report?
You’ll file online. Click over to the FinCEN website and select “File BOIR.”
When do I report?
A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial report.
A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial report—the clock starts to run when the company receives actual notice that its creation or registration is effective or after a secretary of state or similar office provides public notice of the its creation or registration, whichever is earlier.
Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial reports with FinCEN.
The date of creation or registration for a reporting company is the earlier of the date on which the reporting company receives actual notice of its creation (or registration) or when a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the reporting company has been created (or registered).
Does this mean I missed a deadline?
You could have. April 1, 2024, is the first possible beneficial ownership information filing deadline for companies created or registered in 2024. That’s the first possible 90-day mark (for corporations created on January 1, 2024).
Most companies fall under the existing reporting companies deadline—those created or registered to do business in the U.S. before January 1, 2024, must file by January 1, 2025.
Who is a company applicant for a reporting company?
Only reporting companies created or registered on or after January 1, 2024, must report company applicants.
A company that must report its company applicants will have only up to two individuals who could qualify as company applicants:
- The individual who directly files the document that creates or registers the company; and
- If more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
FinCEN created a flowchart to help identify the company applicant:
Does a sole proprietorship have to report?
No, unless a sole proprietorship was created (or, if a foreign sole proprietorship, registered to do business) in the U.S. by filing a document with a secretary of state or similar office. Filing a document with a government agency to obtain an IRS employer identification number, a fictitious business name, or a professional or occupational license does not create a new entity, and does not make a sole proprietorship filing such a document a reporting company.
What about S-Corporations?
Yes. A S-Corp that qualifies as a reporting company must comply with the reporting requirements. An S-Corp’s pass-through structure for tax purposes does not affect its BOI reporting obligations, nor does it qualify an S-Corp as a “tax-exempt entity” under FinCEN BOI reporting regulations.
Do companies created or registered before the CTA was enacted (January 1, 2021) have to report?
Yes. Beneficial ownership information reporting requirements apply to all companies that qualify as reporting companies regardless of when they were created or registered.
Do companies that ceased to exist before the CTA requirements went into effect (January 1, 1024) have to report?
A company is not required to report its beneficial ownership information if it ceased to exist as a legal entity before January 1, 2024—meaning that it entirely completed the process of formally and irrevocably dissolving. A company that ceased to exist as a legal entity before the reporting requirements became effective on January 1, 2024, was never subject to the reporting requirements and is not required to report to FinCEN.
However, if a reporting company continued to exist as a legal entity for any period on or after January 1, 2024, then it is required to report its beneficial ownership information to FinCEN, even if the company had wound up its affairs and ceased conducting business before January 1, 2024.
If a reporting company created or registered in 2024 or later winds up its affairs and ceases to exist before its initial BOI report is due, does it still need to report?
Again, the answer is yes. Reporting companies created or registered in 2024 must report their beneficial ownership information to FinCEN within 90 days of receiving actual or public notice of creation or registration. These obligations remain applicable to reporting companies that cease to exist as legal entities—meaning they wound up their affairs, ceased conducting business, and entirely completed the process of formally and irrevocably dissolving—before their initial beneficial ownership reports are due.
If a reporting company properly filed but later ceased to report, does it need to file an update?
If a reporting company files an initial beneficial ownership information report and then ceases to exist, it is not required to file an additional report with FinCEN noting that the company has ceased to exist.
If a reporting company’s size fluctuates above and below the thresholds for the large operating company exemption, does it need to file a BOI report?
Yes. Remember there are some exemptions—the company will need to file a report if it otherwise meets the definition of a reporting company and does not meet the criteria for the large operating company exemption (or any other exemption). If the company files a report and then becomes exempt as a large operating company, the company should file a “newly exempt entity” report with FinCEN noting that the company is now exempt. If, at a later date, the company no longer meets the criteria for the large operating company exemption or any other exemption, the reporting company should file an updated report with FinCEN. Updated reports should be submitted to FinCEN within 30 calendar days of the change.
Am I exempt if I filed a report that provides beneficial ownership information to a state office, financial institution, or the IRS?
No. It doesn’t matter who you’ve already filed a report with—reporting companies must report beneficial ownership information directly to FinCEN.
Do I have to report more than once?
You only have to file an initial report once. This isn’t an annual report.
However, if you have any updates or corrections to information you previously filed with FinCEN, you must submit those changes within 30 days. Those changes could include registering a new business name, a change in beneficial owners (like a new CEO, or a change in ownership interest), or any change to a beneficial owner’s name, address, or unique identifying number previously provided. If a beneficial owner obtained a new driver’s license or other identifying document that includes a changed name, address, or identifying number, the reporting company would have to file an updated report, including an image of the new identifying document.
Will it cost me anything?
There’s no fee to file the report with FinCEN. However, if you retain a tax or legal professional to help you file, you’ll be responsible for paying those fees.
Do I need to use a tax or legal professional to report?
No. You can use anyone authorized to act on behalf of the company, including an employee, owner, or a tax or legal professional.
What happens if I don’t file a report?
You could land yourself in trouble. A person who willfully violates the reporting requirements may be subject to civil penalties of up to $500 for each day (adjusted for inflation) the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
I thought this was ruled unconstitutional?
Months after the CTA went into effect, a federal court found it unconstitutional. The ruling resulted from a lawsuit filed by the National Small Business United (also known as the National Small Business Association, or NSBA) and Isaac Winkles. On March 1, 2024, U.S. District Judge Liles C. Burke of the Northern District of Alabama, Northeastern Division, found the CTA unconstitutional “because it exceeds the Constitution’s limits on Congress’ power.”
However, while the ruling bars the U.S. Treasury from enforcing the CTA against the Plaintiffs, it does not enjoin enforcement against others.
The government has appealed the ruling.
(Additional actions have also been filed. This could be headed to the Supreme Court—stay tuned.)
How can I find out more?
FinCEN has a BOI webpage. You can also subscribe here to receive updates via email from FinCEN about BOI reporting obligations.
And, of course, the Forbes tax teams will continue to provide updates.
Read the full article here
