By Liz Belcher, CPA
Partner, Tax Services
Email Liz
Have you filed your Beneficial Ownership Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN) yet?
You may have heard of this new reporting requirement that is in place as a result of the Corporate Transparency Act (CTA) that was enacted in 2021, but have you completed the filing submission yet? This disclosure with the Financial Crimes Enforcement Network (FinCEN) is intended to address and guard against money laundering, terrorism financing and other forms of illegal financing by mandating certain entities (primarily small and medium size businesses) to report beneficial ownership information (BOI). While similar reporting is already completed at the banking level, this new mandate provides FinCEN with a much broader reach and deeper understanding of who ultimately owns a specified entity.
The BOI Report is not completed during the tax preparation process or state registration process and needs to be filed separately with FinCEN.
For entities that existed before January 1, 2024, the filing due date is January 1, 2025. Entities formed or registered on or after January 1, 2024 will have 90 days from the date of registration to file. The deadline for BOI reporting for new companies will change to 30 days for new entities registered on or after January 1, 2025. Additionally, when a change to the disclosure report occurs (such as a change of address), the reporting company has 30 days to submit an updated BOI Report (BOIR).
So, what types of entities are you required to file? The Corporate Transparency Act was intentionally broad in how it defined a Reporting Company. Effectively, any corporation, partnership, limited liability company (LLC) and other type of company that is created by a filing with a Secretary of State or equivalent official, is on the hook for possible compliance. This means that a sole proprietor that has not filed Articles of Incorporation or Organization with the state is not a Reporting Company, but a single-member LLC that was created for a small rental property is a Reporting Company.
FinCEN has provided 23 types of entities that are exempt from BOIR requirements, as many of these exempt entities are already regulated by federal or state governments and as such already disclose their beneficial ownership information to governmental authorities.
The three common exemptions among our client base will include an exemption for Tax-Exempt Entities (and certain trusts), Exemption for Inactive Entities and an Exemption for Large Operating Companies. For a company to qualify as a Large Operating Company, an entity must meet all of the following requirements:
- Employ at least 20 full-time employees in the U.S.
- Gross revenue (or sales) over $5 million on the prior year’s tax return
- An operating presence at a physical office in the U.S.
If you have an entity that is required to file, you will need to determine its beneficial owners. A beneficial owner is any individual who, directly or indirectly, exercises “substantial control” or owns or controls at least 25% of the company’s ownership interests.
An individual exercises “substantial control” if the individual (i) serves as a senior officer of the company; (ii) has authority over the appointment or removal of any senior officer or a majority of the board; or (iii) directs, determines, or has substantial influence over important decisions made by the Reporting Company. Thus, senior officers and other individuals with control over the company are beneficial owners under the CTA, even if they have no equity interest in the company.
In addition, individuals may exercise control directly or indirectly, through board representation, ownership, rights associated with financing arrangements, or control over intermediary entities that separately or collectively exercise substantial control.
CTA regulations provide a much more expansive definition of “substantial control” than in the traditional tax sense, so many companies may need to seek legal guidance to ultimately determine which members are deemed beneficial owners within their organization.
Once it is determined that a filing is required and the beneficial owners are identified, the report can be completed. The BOIR requires the following information from the reporting company:
- Legal name
- Alternate name (DBA, “doing business as”)
- Federal employer identification number (EIN)
- State of formation
- Business address
For each beneficial owner, the reporting company must submit the following information:
- Full legal name
- Date of Birth
- Address
- Identification number from either the owner’s passport or driver’s license
- Image/Copy of the passport or driver’s license
Both an entity and an owner may register for an optional FinCEN ID, which can be used in lieu of the information listed above. This ID simplifies the reporting process and would be especially useful for individuals with multiple BOIR filings, as it reduces the duplication of information submitted on each report. To create an ID, visit: https://fincenid.fincen.gov/landing.
The filing itself can be completed using a downloadable Adobe fill-in file that is uploaded to the FinCEN site, or a web-based submission directly to their site. Both can be accessed at: https://boiefiling.fincen.gov/fileboir. Additionally, Sponsel CPA can assist you with your BOIR filing(s). If you would like our help in navigating the submission, please reach out to us and we will provide you with a secure link to submit documents and get started.
The BOIR is not an annual filing; however, a reporting company must file an updated report if any part of the original report has changed. These changes include mailing address, DBA name, change in officers of the company, change in ownership, change in unique ID number used to identify the individual beneficial owners (i.e. a new passport number, not a renewal), etc. Additionally, an exempt entity must file an initial BOIR if it no longer qualifies for exemption. As stated above, beginning January 1, 2025, the timeline is 30 days submitting a new form to report these updates.
There are substantial penalties for willfully violating the BOI reporting requirements, including civil penalties of up to $500 per day the violation continues and possible criminal penalties of up to two years imprisonment and $10,000 in fines.
We encourage you to prepare for this filing well in advance of the January 1, 2025 deadline. The Treasury and FinCEN have created an extensive FAQ section on their website to help you learn more about the CTA and the BOI reporting if you visit: https://fincen.gov/boi. As always, be on the lookout for scams related to your BOIR filings, including fraudulent attempts to solicit information.
If we can assist you further, please call us at (317) 608-6699 or email Liz.