The Corporate Transparency Act (CTA) of 2021 introduced significant changes to beneficial ownership reporting, aiming to enhance transparency and combat financial crimes. As of January 1, 2024, the Financial Crimes Enforcement Network (FinCEN) began accepting reports, marking a pivotal shift in the compliance landscape for U.S. and foreign entities operating in the United States.
Who Must Report Beneficial Ownership Information?
Entities required to report under the CTA include corporations, limited liability companies (LLCs), and similar entities either created by filing documents with a state secretary or Indian tribe or foreign entities registered to do business in the U.S.
However, certain entities such as governmental authorities, banks, and securities issuers, among others, are exempt. The 23 types of entities exempt from the reporting obligation are:
- 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 provider
- Commodity Exchange Act-registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company
- Subsidiary of certain exempt entities
- Inactive entity
This list is simplistic, however, meaning there are many nuances within these 23 exempt companies. For example, a “large operating company” must employ more than 2- full-time employees, have filed federal income tax returns with more than $5 million in gross receipts or sales in the previous year, and have a physical office within the US.
For full guidance, refer to the FinCEN guidelines or reach out to the team at Evolution Tax & Legal.
What are the Reporting Requirements for Beneficial Ownership Information (BOI)?
Each reporting company must file a report disclosing beneficial owners’ names, birth dates, addresses, and unique identification numbers. Beneficial owners are defined broadly, encompassing individuals with 25% or more ownership or those exercising substantial control over the entity.
Key Provisions and Updates
- Filing Deadlines: Reporting companies formed before January 1, 2024, have until January 1, 2025, to file initial reports. Reporting companies created or registered on or after January 1, 2024, and before Jan. 1, 2025, have 90 calendar days after receiving actual or public notice that their company’s registration is effective. And finally, those formed after Jan. 1 2025 must file within 30 days of creation or registration. Updates to reports are required within 30 days of any relevant changes.
- Penalties for Non-Compliance: Willful violations may result in civil penalties of up to $500 per day and criminal penalties, including fines and imprisonment
- Identification Documents: Identification documents without photographs are accepted for religious reasons, and current residential addresses must be reported.
There is no annual reporting requirement. However, reporting companies must file an initial BOI report and updated or corrected BOI reports as needed. For more detailed information, visit the FinCEN FAQ page.
Compliance Tips
- Use FinCEN Resources: Extensive guidance materials, FAQs, and training webinars are available to help entities understand and comply with the reporting rules .
- Maintain Accurate Records: Regular updates and detailed records of filings and supporting documents are crucial for compliance and audit trails.
- Professional Advice: Consulting legal experts familiar with the CTA and BOIR regulations is advised to ensure full compliance.
To review FAQs provided by FinCEN, click here.
Conclusion
The CTA’s Beneficial Ownership Reporting Rule represents a major step towards greater corporate transparency in the U.S. With stringent requirements and significant penalties for non-compliance, it is imperative for affected entities to familiarize themselves with the new rules, ensure timely and accurate reporting, and utilize available resources for guidance. As the regulatory landscape continues to evolve, staying informed and proactive in compliance efforts will be key to navigating these changes successfully.
Contact Evolution Tax & Legal for BOI Filing Assistance
Led by dually licensed CPA and tax attorney, Alton Moore, Esq, CPA, the team behind Evolution Tax & Legal can assist your company in properly reporting and filing your BOI. Reach out today to get started, ensuring you stay in compliance and avoid hefty penalties.