🚩 Red Flag | Oh BOI Edition! | TaxGPT's Newsletter

Understanding FinCEN's Beneficial Ownership Information Reporting Under the Corporate Transparency Act

The Corporate Transparency Act (CTA), enacted in 2021, requires many companies doing business in the United States to report information about the individuals who ultimately own or control them. The Act established the Beneficial Ownership Information (BOI) reports, which require reporting companies to report individuals that have ownership and/or control in an effort to curb illicit finance involving money laundering, drug trafficking, terrorism, and corruption. 

What is a “reporting company”?

A reporting company is any entity that does not qualify for an exemption. There are two categories of reporting companies: a “domestic reporting company” and a “foreign reporting company”.  If your company is neither a “domestic reporting company” nor “foreign reporting company” because it does not meet either definition (as described below) or it qualifies for an exemption, then it is not required to file a BOI report with FinCEN.

In general, domestic reporting companies are any of those entities established as a corporation, LLC, or other entity created by filing a document with a secretary of state or any similar office under the law of a State or Indian tribe.

Foreign reporting companies are those entities registered to do business in any US state or Tribal jurisdiction by filing a document with a secretary of state or similar office of the State or Tribe.

Reporting company exemptions

23 industries may qualify for reporting exemptions, should they meet industry-specific exemption criteria:

• 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
•  Tax-exempt entity
•  Entity assisting a tax-exempt entity
•  Large operating company
•  Subsidiary of certain exempt entities
•  Inactive entity

What is beneficial ownership?

A beneficial owner is any individual who directly or indirectly owns or controls 25% or more of a company’s equity or who exercises substantial control over the company. The CTA focuses on identifying these individuals to prevent the misuse of anonymous shell companies, which have historically been exploited for illegal activities.

Key requirements for BOI reporting

The CTA mandates that certain domestic and foreign companies submit information on their beneficial owners to FinCEN. Here's a breakdown of the key elements of BOI reporting:

1. What Information is Required?
   • Reporting company must report, for the entity:
     1. Full legal name
     2. Any trade name or “doing business as” (DBA) name
     3. Complete current US address
     4. State, Tribal, or foreign jurisdiction of formation
     5. IRS Taxpayer Identification Number (including an Employer Identiciation Number)
   • Reporting company must report, for each beneficial owner and company applicant:
     1. Full legal name
     2. Date of birth
     3. Complete residential or business address
     4. Unique identifier (like a passport or driver's license number, or similar government-issued identification) of each beneficial owner.
2. When Must Reports Be Filed?
   • For companies that existed as of January 1, 2024, BOI reports must be submitted by January 1, 2025.
   • Companies created or registered on or after January 1, 2024, and before January 1, 2025, must file their BOI reports within 90 calendar days after receiving actual or public notice that the company’s creation or registration is effective. 
   • For companies created on or after January 1, 2025, BOI reports must be filed within 30 calendar days from actual or public notice that the company’s creation or registration is effective.
   • Any changes to beneficial ownership must be reported within 30 days of the change. This includes corrections for any inaccuracies.
3. Confidentiality and Security of Information
   • FinCEN will maintain the BOI in a secure, non-public database. The information is only accessible to certain law enforcement agencies and financial institutions, under strict guidelines, to support investigations into financial crimes.
4. Potential Penalties for Non-Compliance: Failing to comply with BOI reporting requirements can result in significant penalties. Willful failure to report complete or updated beneficial ownership information, or willful provision to provide false or fraudulent information, face civil penalties of up to $500 per day and criminal penalties, including fines of up to $10,000 and imprisonment of up to two years. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure. Persons may also be subject to civil and/or criminal penalties for willfully causing a company not to file a required BOI, or to report incomplete or false information, i.e. refusal to provide beneficial owner's information.

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