On September 29, 2022, Congress issued the beneficial ownership information (BOI) reporting requirement of the Corporate Transparency Act (CTA) as part of the Anti-Money Laundering Act of 2020.
- Effective January 1, 2024, many domestic and foreign entities (including corporations, limited liability companies (LLCs), and other entities created—or registered to do business in the U.S. or in any tribal jurisdiction—by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe)1 will be required to file BOI reports with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
- Entities created after January 1, 2024 will have 30 calendar days after “receiving actual or public notice that the creation or registration of the reporting company is effective”2 to file a report. Entities already in existence on January 1, 2024 will have until January 1, 2025 to file a report.
- There are 23 exemptions available that, if met, exempt an entity from BOI reporting. Likely one of the most common exemptions will be for large operating companies, defined as an entity that:
- Has 20-plus full-time employees
- Has gross receipts or sales in excess of $5 million in the previous tax year
- Has an operating presence at a physical office in the U.S.
- “If there is a change [or correction] to previously reported information about the reporting company itself or its beneficial owners, updated [or corrected] reports are due within 30 calendar days after a change occurs,”3 or when “you become aware of, or have reason to know of, inaccurate information.”4
- Entities must file the reporting information both at formation and annually. Failure to submit reports or providing false reports may result in both civil and/or criminal penalties.
The Purpose of the CTA & BOI Reporting
Millions5 of businesses are formed within the U.S. each year as corporations, limited liability companies, or other corporate structures. Up until now, there has not been a centralized or complete database of information regarding who owns and operates legal entities within the United States. Each state has its own set of rules that govern how to form, operate, and dissolve a corporation. A business can choose to incorporate in any state, even a state in which the corporation has no business activities. Therefore, given this variability, the government has created the BOI reporting requirement to provide transparency to entities’ ownership. This transparency also lessens the opportunity for money laundering schemes in the United States.
The CTA and its subsequent regulations present substantial updates to the U.S. anti-money laundering laws, with a broader goal to level the playing field for honest business owners. With these reports, law enforcement agencies and structured financial institutions gain greater access to the beneficial ownership information of entities doing business in the United States. In return, these regulations enhance an honest business’s credibility by helping ensure transparency, thereby fostering trust among customers, investors, and other stakeholders.
With the effective date quickly approaching, let’s take a look at what one can expect from the new regulations.
There are three parties whose information must be reported on the BOI Form. These are:
- Reporting Company: A reporting company is defined as a corporation, LLC, or similar entity that is created under the laws of either a U.S. state or foreign country and registered to do business in the United States. This does not typically include entities that are already heavily regulated, such as banks, credit unions, investment funds, and certain types of nonprofit organizations.6 Reporting companies can be either domestic or foreign (and registered to do business in any U.S. state or tribal jurisdiction).7
- Beneficial Owner: A beneficial owner is described as any individual who—directly or indirectly—either exercises “substantial control”8 over the company or owns or controls at least 25% of the ownership interests. Basically, this is the person who “benefits” per se.
- Company Applicant: There can be up to two individuals who qualify as company applicants: (a) the individual who directly files the document that creates—or first registers—the reporting company; and (b) the individual who is primarily responsible for directing or controlling the filing of the relevant document. Entities created prior to January 1, 2024 are not required to include information on company applicants.
Certain categories will be exempt from submitting a report to FinCEN. Please reference the Appendix for a complete listing of exemptions.
What Is in the Report?
The form will ask you to list the following information for:
- The Reporting Company
- Full legal name;
- Any trade name or “doing business as” (d/b/a) name;
- Current address;
- Jurisdiction of formation;
- Federal Taxpayer ID number
- Beneficial Owners & Company Applicants
- Full legal name;
- Date of birth;
- Current address;
- Unique ID and issuing jurisdiction, e.g., U.S. passport or state driver’s license;
- Image of ID document
When to File?
- Entities created after January 1, 2024 will have 30 days to file a report.
- Entities already in existence on January 1, 2024 will have until January 1, 2025 (a full calendar year) to file a report.
- Changes in any information previously reported or reported by mistake must be updated within 30 days of the change.
You May Be Wondering …
Privacy & Fairness Considerations
Who Has Access to FinCEN: Reports will not be accessible to the public. In addition, FinCEN reports are not subject to Freedom of Information Act requests. Only government agencies will have access to the information. These include those federal agencies engaged in national security, intelligence, and civil and criminal law enforcement; Treasury in connection with its official duties including tax administration; and state, local, and foreign law enforcement agencies in connection with criminal or civil investigations.
Exemptions? The exemptions outlined in the Appendix are subject to future change, according to the final regulations. Keep an eye out for future articles regarding this topic.
Administrative & Punitive Considerations
Tech/Software: According to the IRS, FinCEN is currently designing and building a new IT system for this purpose. For this reason, reports will not be accepted prior to January 1, 2024.
The Form: Whether or not the reporting requirements of BOI will mimic current reporting forms is currently undetermined, as the proposed FinCEN system is still being developed.
Non-Compliance & Penalties: Civil penalties carry up to $500 a day in penalties for each day that a violation continues. Criminal penalties include up to $10,000 and/or up to two years of imprisonment. Criminal penalties can result from willfully failing to report or knowingly providing inaccurate information.
There is still quite a lot of discussion to be had regarding how the CTA will perform once in practice. As previously discussed, reports will not be accepted prior to the January 1, 2024 effective date. FORVIS will continue to monitor administrative guidance related to the BOI reporting rules and provide updates as more details emerge. Don’t hesitate to reach out to a professional at FORVIS with any questions or submit a Contact Us form below.
The following listing details9 the reporting company exemptions for filing BOI reports:
- Certain types of securities reporting issuers.
- A U.S. governmental authority.
- Certain types of banks.
- Federal or state credit unions as defined in Section 101 of the Federal Credit Union Act.
- Bank holding company as defined in Section 2 of the Bank Holding Company Act of 1956, or any savings and loan holding company as defined in Section 10(a) of the Home Owners Loan Act.
- Certain types of money transmitting or money services businesses.
- Any broker or dealer, as defined in Section 3 of the Securities Exchange Act of 1934, that is registered under Section 15 of that Act (15 U.S.C. 78o).
- Securities exchanges or clearing agencies as defined in Section 3 of the Securities Exchange Act of 1934, and that is registered under Sections 6 or 17A of that Act.
- Certain other types of entities registered with the SEC under the Securities Exchange Act of 1934.
- Certain types of investment companies as defined in Section 3 of the Investment Company Act of 1940, or investment advisers as defined in Section 202 of the Investment Advisers Act of 1940.
- Certain types of venture capital fund advisers.
- Insurance companies defined in Section 2 of the Investment Company Act of 1940.
- State-licensed insurance producers with an operating presence at a physical office within the U.S., authorized by a state, and subject to supervision by a state’s insurance commissioner or a similar official or agency.
- Commodity Exchange Act registered entities.
- Any public accounting firm registered in accordance with Section 102 of the Sarbanes-Oxley Act of 2002.
- Certain types of regulated public utilities.
- Any financial market utility designated by the Financial Stability Oversight Council under Section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010.
- Certain pooled investment vehicles.
- Certain types of tax-exempt entities.
- Entities assisting a tax-exempt entity described in (19) above.
- Large operating companies with at least 20 full-time employees, more than $5 million in gross receipts or sales, and an operating presence at a physical office within the United States.
- The subsidiaries of certain exempt entities.
- Certain types of inactive entities that were in existence on or before January 1, 2020, the date the CTA was enacted.
- 5According to the final regulations, the number of legal entities currently operating in the U.S. is difficult to estimate with certainty. However, Congress recently found that more than 2 million corporations and limited liability companies are being created under the laws of the states each year.
- 8As defined in 31 CFR Section 1010.380(d)(1)