Starting Jan. 1, 2024, a significant number of businesses were required to comply with the Corporate Transparency Act (“CTA). The CTA requires the disclosure of the beneficial ownership information (otherwise known as “BOI”) of certain entities from people who own or control a company.
The intent of the BOI reporting requirement is to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity. The CTA is not a part of the tax code. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.
Below is some information for you to consider regarding this reporting requirement. This information is meant to be general and should not be applied to your specific facts and circumstances without consultation with competent legal counsel and/or another retained professional adviser.
What entities are required to comply with the CTA’s BOI reporting requirement?
Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs), limited partnerships or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.
Are there any exemptions from the filing requirements?
There are 23 categories of exemptions, including publicly traded companies, banks and credit unions, securities brokers/dealers, certain public accounting firms, tax-exempt entities and certain inactive entities, among others. Many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.
In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 people in the U.S.;
- Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and
- Be physically present in the U.S.
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least 25 percent of the ownership interest of a reporting company
An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions, including senior officers, regardless of formal title and even if they have no ownership interest.
The detailed CTA regulations define the terms “substantial control” and “ownership interest” further.
When must companies file?
There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.
- New entities (created/registered in 2024) — must file within 90 days
- New entities (created/registered after Dec. 31, 2024) — must file within 30 days
- Existing entities (created/registered before Jan. 1, 2024) — must file by Jan. 1, 2025
- Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must report changes within 30 days
- Additional time to file has been granted to entities with a primary business location in one of five Hurricane disaster areas which includes the entire state of Florida to July 1, 2025
What sort of information is required to be reported?
Companies must 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). For newly created entities, identification of the company applicant of the entity is required.
Additionally, information on the beneficial owners of the entity is required. 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.
Risk of noncompliance
Penalties for willfully not complying with the BOI reporting requirement can result in significant civil penalties including fines and potential criminal charges.
How to comply with the requirements/filing with FinCEN
- Self-Registration – using FinCEN e-filing portal https://boiefiling.fincen.gov and following the instructions. You can fill out a web-based form or upload a completed PDF version of the form. Note that we are unable to provide support for self- registration beyond the information provided here.
- Legal counsel/attorney – due to the complexities involved, you may want to reach out to your legal counsel to assist you with the registration.
- Third party service providers such as payroll service companies may offer registration services. Others are available for a fee, but we are unable to recommend any specific companies.
However, if you need the assistance of HSC/Tuscan to handle the CTA reporting requirement, please let us know as soon as possible. We anticipate a minimum fee of $600 per filing, with a separate required engagement letter. If your filing qualifies for the hurricane deadline relief, you have additional time to file the registration. If your entity does not qualify for the relief, we will need your information immediately.
