The Corporate Transparency Act (signed into law on January 1,2021) expanded anti-money laundering laws and created new reportingrequirements for certain companies doing business in the US. Beginning in 2024,many small businesses are required to report information about their beneficialowners to the Financial Crimes Enforcement Network (FinCEN) in an effort tocreate a national database for use by national security and law enforcementagencies to prevent the use of shell companies for criminal activity.
Based on the current legislation, there is a risk that advisingor preparing the BOI reports could be considered the unauthorized practice oflaw by CPAs. Consequently, Freemon, Shapard & Story will not advise on orassist with the preparation of BOI reporting. We recommend that you reach outto your legal representative for assistance with these filings. We are ablethough to provide you with the following information to help you begin thefiling process.
Who Must File. Both domestic andforeign reporting companies are required to file reports. A company isconsidered a reporting company if a document was filed withthe secretary of state (SOS) or similar office to create or register theentity. Corporations (including S corporations), LLCs, and other entitiesformed through the SOS are subject to the reporting requirements. But, becausesole proprietorships, trusts, and general partnerships do not require thefiling of a formal document with the SOS, they generally are not considered areporting company and will not have a filing requirement. Foreign companies arerequired to file reports if they are registered with the SOS or similar officeunder state law.
Some companies are exempt from reporting, but many of theexempted companies are already required to report ownership information to agovernmental authority. Of particular interest to you may be the exemptionfor large operating companies. A large operating company is anyentity with (a) more than 20 full-time US employees, (b) an operating presenceat a physical office within the US, and (c) more than $5,000,000 of US-sourcedgross receipts reported on its prior year federal income tax return. If youmeet these qualifications, you are not subject to the new reportingrequirements.
What Information Must be Provided. Beneficial ownership information (BOI) must be reported for thereporting company's beneficial owners and (for entities formedor registered after 2023) company applicants. BOI includes anindividual's full legal name, date of birth, street address and a unique IDnumber. The unique ID number can be from a non-expired US passport, statedriver's license, or other government-issued ID card. If the individual doesnot have any of those documents, then a non-expired foreign passport can beused. An image of the document showing the unique ID number must also beincluded with the report.
Beneficial Owners. Twogroups of individuals are considered beneficial owners of a reporting company:(1) any individual who directly or indirectly owns or controls at least 25% ofthe ownership interests of the reporting company; or (2) anyindividual who exercises substantial control over thereporting company.
Individuals with substantial control are those with substantialinfluence over important decisions about a reporting company's business,finances, and structure. Senior officers (president, CFO, general counsel, CEO,COO, and any other officer who performs a similar function) are automaticallydeemed to have substantial control, as are individuals with the authority toappoint or remove senior officers and board members. There is no requirementthat these individuals have actual ownership in the company to be considered abeneficial owner for reporting purposes.
Company Applicants. Thecompany applicant is the person who actually files the document that creates orregisters the reporting company (e.g., an attorney). Company applicants mustprovide the same information that is required of beneficial owners, but only ifthe reporting company is formed or registered after 2023. Because of thedifficulty in tracking down information about company applicants for reportingcompanies that have been in existence for a number of years, reportingcompanies formed or registered before 2024 do not have to supply BOI for theircompany applicants.
FinCEN Identifiers. Individualsand reporting companies can request a FinCEN Identifier (FinCEN ID) to use inplace of supplying detailed information on the report. A FinCEN ID is a uniquenumber assigned by FinCEN which is obtained by submitting the same informationas is required of a beneficial owner or reporting company. A FinCEN ID may beuseful to individuals that prefer to send their personal information directlyto FinCEN rather through a reporting company, or to individuals that may berequired to supply information as a beneficial owner or company applicant ofseveral reporting companies.
Important Filing Dates. Forexisting reporting companies created or registered before 2024, the initialreport is due by January 1, 2025. For reporting companies created or registeredin 2024, the initial report is due 90 days after the entity's creation orregistration. For reporting companies created or registered after 2024, theinitial report is due 30 days after the entity's creation or registration.
If there is a change to previously reported information aboutthe reporting company or its beneficial owners, an updated report must be filedwithin 30 days of the change. So, it is imperative that your company implementa system to identify reportable changes and file an updated report with FinCENin a timely manner. The penalties for willfully failing to file both initialand updated reports are steep-$500 per day that the report is late, up to$10,000 and imprisonment for up to two years.
How to File. BOI reports must befiled electronically. FinCEN's e-filing portal, available at https://boiefiling.fincen.gov/, provides two methods to submit a report: (1) by filling out aweb-based version of the form and submitting it online, or (2) by uploading acompleted PDF version of the BOI report. Some third-party service providers mayalso offer the ability to file the BOI report through their software. Theperson who submits the BOI report will need to provide their name and emailaddress to FinCEN. There is no fee for filing the report.
If you have any questions about these new reporting rules andhow they affect your business, we would be happy to discuss them with you andprovide you with recommendations for legal counsel assistance. FinCEN also hasa Small Entity Compliance Guide and frequently asked questions to help guidebusinesses through the reporting requirements. These are available at https://www.fincen.gov/boi/small-business-resources.
