By Amy Sandlin, CPA, Tax Quality Control at Blue & Co.

Tens of millions of businesses are estimated to be now required to file a Beneficial Ownership Information Report (“BOIR”) to disclose ownership information with the Financial Crimes Enforcement Network (“FinCEN”).

The Corporate Transparency Act (“CTA”), enacted as part of the National Defense Act for Fiscal Year 2021, authorized the BOIR.

The BOIR disclosures focus on individuals who own or control certain companies (“beneficial owners”), and the disclosures are “beneficial ownership information” (or “BOI”).

The reporting intends to make it harder for bad actors to hide or benefit from money laundering, financing of terrorism, serious tax fraud, human and drug trafficking, and other illicit activity through shell companies or other opaque ownership structures.

General Filing Information

Companies that existed before January 1, 2024, generally will have until January 1, 2025, to file.

Companies formed or registered on or after January 1, 2024, will have 90 days to file. This deadline is reduced to 30 days for companies formed or registered on or after January 1, 2025.

Companies will need to file updated reports if any BOI disclosures change.

FinCEN expects that many, if not most, reporting companies will be able to submit their beneficial ownership information to FinCEN on their own by using the guidance FinCEN has issued.

For answers to key questions on Beneficial Ownership reporting, please refer here.

What Entities are Required to Comply with the Beneficial Ownership Information Reporting Requirement?

The reporting requirement is far-reaching. Entities that file with a secretary of state or similar office of any state or tribal jurisdiction (collectively referred to as filing with a “secretary of state” and “state” respectively, throughout this article) are subject to the CTA reporting requirements. This includes corporations, limited liability companies (LLCs), limited liability partnerships, business trusts, and many limited partnerships.

An entity that is required to file a BOIR is a “reporting company.”

Both domestic and foreign entities may be reporting companies, with slightly different criteria for each.

1. Domestic entities created by filing a document with a secretary of state.
2. Foreign entities formed under the law of a foreign country and registered to do business in any state by filing a document with the secretary of state.

State law governs requirements to file or register with the secretary of state. Therefore, whether your entity is a “reporting company” is a matter of state law.

For more information on whether your company is a domestic or foreign reporting entity, see here.

Single Member LLCs and Sole Proprietorships

Single Member LLCs

There is no distinction between single member LLCs and multi-member LLCs.

An LLC is a “reporting company” if it meets the criteria outlined above.

Sole Proprietorships

Sole proprietorships generally are not required to file since they do not file or register to do business with a secretary of state.

Filing a document with a government agency to obtain the following documents does not create a new entity and does not make a business a reporting company:

1. An IRS employer identification number,
2. A fictitious business name, or
3. A professional or occupational license.

What Entities are Exempt from the Beneficial Ownership Information Reporting Requirements?

There are 23 exemptions, primarily for heavily regulated businesses that already report this information to the federal government or businesses considered “low risk” for the illegal activity this reporting intends to combat.

FinCEN expects the reporting obligation to fall primarily on small businesses and other businesses with simple ownership and management structures.

Exempt entities do not need to file an initial BOI report. A reporting company must file an updated report if it becomes exempt after filing a BOIR. An exempt entity must file an updated report if it no longer qualifies for exemption.

These three common exemptions are highlighted in our Self-Filing User Guide:

1. Exemption for Large Operating Entities
2. Exemption for Inactive Entities
3. Exemption for Tax-Exempt Entities

Noncompliance Penalties

A person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 each day the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.

Potential violations include:

1. Failing to file a beneficial ownership information report,
2. Filing false beneficial ownership information, or
3. Failing to correct or update previously reported beneficial ownership information.

BOIR is a new compliance requirement, and the CTA created a safe harbor from penalty. If you voluntarily correct a mistake or omission within 90 days of the original report deadline, you may avoid being penalized. However, you could face civil and criminal penalties if you disregard your beneficial ownership information reporting obligations.

Both individuals and corporate entities can be held liable for violations. This can include not only an individual who actually files (or attempts to file) false information with FinCEN, but also anyone who willfully provides the filer with false information to report.

Individuals and corporate entities may also be liable for failing to report complete or updated beneficial ownership information. Individuals can be held liable if they cause the failure or are a senior officer at the company at the time of the failure.

Scam Alert

FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the CTA.

The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those emails or letters are fraudulent. FinCEN does not send unsolicited requests.

Do not respond to these fraudulent messages, click on any links, or scan any QR codes within them.

Next Steps

Blue & Co. is committed to informing you of changing regulatory requirements that may impact your business. The CTA is not part of the Internal Revenue Code, and BOI reports are not filed with the IRS. The reports are filed with the Financial Crimes Enforcement Network under the Bank Secrecy Act (federal law that requires record-keeping and reporting on certain financial transactions).

The reporting information outlined above, along with our supplementary Self-Filing User Guide, is summarized from FinCEN’s guidance and is general. It is not a substitute for competent legal advice.

It is the responsibility of the reporting company to identify its beneficial owners and company applicants and to report those individuals to FinCEN.

FinCEN expects many, if not most, reporting companies will be able to submit their beneficial ownership information to FinCEN on their own using the guidance issued by FinCEN. FinCEN’s guidance is comprehensive, and we agree with FinCEN’s expectations that most businesses will be able to file on their own using FinCEN’s resources.

The compliance responsibility, information reported, and reporting deadlines do not correspond to tax return preparation services and are not a service included in our tax return preparation engagements. Additionally, we will not file Beneficial Ownership Information Reports on behalf of clients under any circumstance.

As with any new requirement, there are still uncertainties about who must file. We recommend seeking legal counsel if you need help determining your reporting obligation.

Recommended Resources:

• Introduction to BOI Reporting Brochure
• FinCEN BOI Small Business Resources
• FinCEN BOI FAQs
• FinCEN Small Entity Compliance Guide
• FinCEN Webinar (Archive) – Beneficial Ownership Information Reporting Requirements

Click here to download the Self-Filing User Guide