A new year brings new federal reporting requirements! Effective January 1, 2024, entities across the United States will be required to report information about their beneficial owners pursuant to the Corporate Transparency Act.
The Corporate Transparency Act (“CTA”) was passed in 2021, creating a federal reporting requirement for businesses throughout the United States to disclose beneficial ownership information (“BOI”) with the intent to “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures”. Businesses will be reporting BOI to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
Companies required to report include any corporation, limited liability company (“LLC”), or a company that was otherwise created in the United States by filing a document with a Secretary of State, or any similar office (“domestic reporting company”), as well as any foreign company that was registered to do business in any U.S. state (“foreign reporting company”).[1] Among the twenty-three types of companies exempt from reporting, however, include publicly traded companies, nonprofits, and certain large operating companies.[2] Be aware, though, that these exemptions are not blanket exemptions, and may require other disclosures already in place.
In particular, FinCEN is looking for information related to a business’s beneficial ownership, meaning the “the individuals who ultimately own or control the company”. An individual would be deemed a beneficial owner if they are “any individual who, directly or indirectly: (i) exercises substantial control over a reporting company; OR (ii) owns or controls at least twenty-five percent (25%) of the ownership interests of a reporting company”, and individuals may, in some cases, be deemed a beneficial owner through both substantial control and their qualifying ownership interests.
Reporting deadlines for companies existing prior to the January 1, 2024 effective date as well as reporting deadlines for companies created on or after January 1, 2024 are outlined in the Quicklook table below. Reports will include the reporting company’s full legal name, any trade names or “DBAs”, trademark information, current address, principal place of business, tax identification information, location of formation and information specific to each beneficial owner. Beneficial owners will each have to disclose full legal name, date of birth, current address, and an image of the appropriate – non-expired – identification information. After reporting, if the reporting company is to change any of the reportable information, the reporting company is required to submit a revised report within thirty (30) days of such change.
While there is no fee associated with filing the BOI Report, there are steep penalties for violating the CTA reporting requirements. In instances when the reporting company willfully fail to report complete or updated beneficial ownership information to FinCEN, penalties range from civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000, with senior officers of an entity that fails to file a required BOI report may be held accountable for that failure. In instances when a reporting company (unintentionally or inadvertently) submits inaccurate information, the CTA does provide a safe harbor from such civil and criminal liability “if the person who submitted the report voluntarily and promptly corrects the report within 90 days”.
On the surface, this requirement may appear to be an easy lift for reporting companies to attempt to tackle in-house. However, for interpreting who may qualify as a beneficial owner, companies may benefit from consulting their attorney, accountant or tax advisor when filing the initial and/or updated reports to ensure they’re completed on time and to FinCEN’s standards.
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QUICKLOOK: BENEFICIAL OWNERSHIP INFORMATION (“BOI”) REPOTRING REQUIREMENT
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| WHO | Any corporation, limited liability company (“LLC”), or company that was otherwise created in the United States as well as any foreign company that was registered to do business in any U.S. state are required to report BOI.
BOI should identify individual(s) that have substantial control over the reporting company and/or qualifying ownership interest (25% or more) in the reporting company.
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| WHAT | For domestic reporting companies, reports will generally include:
There are some reporting deviations for foreign reporting companies as well as the required information related to the individuals authorized to file the report on behalf of the reporting companies.
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| WHEN | Reports will be accepted starting on January 1, 2024.
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| WHERE | Companies required to report will do so electronically through FinCEN’s online BOI filing system. There is no fee associated with filing, and once filed, the FinCEN system will provide the filing company with a confirmation of receipt.
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| HOW | Employees, owners, third-party service providers, or any other party authorized by the reporting company may file BOI reports on the reporting company’s behalf.
Reporting companies will be required to report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN). Additionally, reporting companies will be required to report information on the beneficial owners of the entity and, if applicable, information on the company applicants for newly created entities. This information includes — name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver’s license or passport) and an image of such document.
Filers will complete the appropriate form available on FinCEN’s website and submit the form via the online BOI filing system[3] discussed above.
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| IS MY ENTITY EXEMPT? | There are twenty-three (23) types of entities that are exempt from the BOI Reporting Requirements. Likely the two most common types of entities that will be exempt will be “large operating companies” and “tax-exempt entities”.
To qualify under the “large operating company” exemption, a company must meet all of the following: (i) employ more than 20 people in the U.S.; (ii) have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and (iii) be physically present in the United States.
Generally, charitable organizations, churches and religious organizations, private foundations, political organizations, and other nonprofits would qualify under the “tax exempt entity” exemption, and such entities should review the checklist in FinCEN’s Small Entity Compliance Guide[4] to confirm (see “Exemption #19” on page 11).
Additional entities that qualify for exemptions include: Securities reporting issuer, Governmental authority, Bank, Credit union, Depository institution holding company, Money services business, Broker or dealer in securities, Securities exchange or clearing agency, Other Exchange Act registered entity, Investment company or investment adviser, Venture capital fund adviser, Insurance company, State-licensed insurance producer, Commodity Exchange Act registered entity, Accounting firm, Public utility, Financial market utility, Pooled investment vehicle, Entity assisting a tax-exempt entity, Subsidiary of certain exempt entities, and Inactive entities. |
| WHAT ELSE? | Reach out to Killoran Long (klong@jordanprice.com) with any questions or concerns regarding your company’s reporting requirements.
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[1] In addition to companies created by filing with any Secretary of State, companies that were created by filing a document with any similar office created under the law of a state or Indian tribe are also required to report BOI to FinCEN under the CTA.
[2] See FinCEN’s “Small Entity Compliance Guide” (https://www.fincen.gov/boi/small-entity-compliance-guide) for more particulars on what companies are exempt from reporting.
[3] https://boiefiling.fincen.gov/
[4] https://www.fincen.gov/boi/small-entity-compliance-guide
by Killoran Long