Charles R. Kennedy, CPA, MBA
Vice President & Director of Tax Services
Starting January 1, 2024, corporations, limited liability companies and similar entities will be required to report certain “beneficial owner information” (BOI) to FinCEN — the Financial Crimes Enforcement Network arm of the U.S. Treasury Department — under the provisions of the Corporate Transparency Act (CTA).
What is most notable about the BOI reporting requirement is it primarily applies to small businesses. Large companies – defined as having more than 20 employees, more than $5 million in consolidated gross receipts and a physical place of business in the U.S. – are among several entities that are exempt from the reporting requirement.
The law is not widely understood, and many owners of affected small companies may be unaware of their reporting obligations.
FinCEN will begin accepting BOI reports on January 1, 2024. Corporations (S corporations and C corporations), LLCs and other entities that are already in existence before that date will have another year – until January 1, 2025 – to file their first BOI reports. But entities formed after January 1, 2024, will be required to file their first BOI reports within 30 days of registration.
While the law requires BOI reporting of individuals who hold 25% or more ownership interest, it also more broadly applies to individuals who exercise “substantial control” over the company, either directly or indirectly. Therefore, individuals exercising substantial control do not need to have ownership in the company, and automatically include any senior officers of the company.
It is important to note that the BOI reporting information is submitted by the company, not the individual.
Penalties for noncompliance are steep, including $500 a day up to $10,000 in fines and up to two years in jail.
What is the Corporate Transparency Act?
Passed by Congress in late 2020 and enacted by a veto override, the CTA is intended to help national security, intelligence and law enforcement agencies fight money laundering, the financing of terrorism and other illicit activity, as well as bring the U.S. into compliance with international anti-money laundering standards.
The legislation’s chief sponsor (now-former) Rep. Carolyn Maloney, D-NY, characterized the measure as addressing “malicious actors who have been using shell corporations” to hide money. However, the CTA has been criticized for having regulations so broadly written that it will apply to hundreds of thousands of small businesses.
Among other provisions, the CTA will require affected companies to report to FinCEN on an annual basis certain information of any person who:
- Exercises substantial control over the company, or
- Owns or controls at least 25% of the ownership interests of the company
The Corporate Transparency Act defines companies that must report BOI information as:
- Domestic corporations, LLCs and other entities registered under U.S. state law;
- Foreign corporations, LLCs or entities formed under foreign law that are registered to do business in any U.S. state.
There are 23 types of entities exempt from BOI reporting, including:
- Banks, credit unions and tax-exempt entities registered with the IRS.
- Large operating companies with more than 20 full-time employees, more than $5 million in sales, and a physical office in the U.S. Subsidiaries of large companies that are exempt from BOI reporting also are exempt.
Reports will include information about beneficial owners of the company.
- A beneficial owner is either someone who directly or indirectly exercises substantial control over the company, or
- Who directly or indirectly owns 25% or more of the company.
Reporting companies must provide the following information:
- Legal name of the company
- Trade names (i.e., DBA)
- Street address of principal place of business in the U.S.
- Jurisdiction of formation or registration
- Tax ID# of the company
Beneficial owner information to be provided includes:
- Individual’s name, date of birth and residential address
- Unique ID# from acceptable ID document, and copy of ID (U.S. driver’s license, U.S. passport or other government-issued ID)
More information is available at FinCEN’s Beneficial Ownership Information web page.
How you may be affected
If you own or control a corporation, limited liability company or similar entity – or you hold at least a 25% ownership interest – the entity may be required to report your identity to FinCEN after next January.
Contact your GT Reilly advisor to discuss CTA compliance requirements for your business and any action you should take.
