On September 29, 2022, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCen) issued a final rule implementing the bipartisan Corporate Transparency Act’s beneficial ownership (BOI) reporting provisions. The new rule will require business entities to disclose identifying information of their beneficial owners. This new rule is to assist government agencies to uncover illicit use of shell companies engaging in drug trafficking, fraudsters, and corrupt actors who launder or hide money and other assets in the United States.
The rule requires reporting companies to file reports with FinCen that identify two categories of individuals: the beneficial owners of the entity and the company applicants of the entity.
Reporting companies are a domestic or foreign corporation, limited liability company, business trust, partnership or any entity created by filing a document with a secretary of state or similar office under the law of a state or Indian tribe.
Beneficial owner includes any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company.
Company applicants is defined as an individual who directly files the document that creates the entity ( in the case of foreign reporting company, the document that first registers the entity to do business in the United States) or the individual who is primarily responsible for directing or controlling the filing of the relevant documents by another. This would include any senior officers (such as a President, CEO, CFO, COO or General Counsel) deemed to have substantial control over a reporting company.
The BOI report is required to be filed with FinCen and the filing is free. Companies created or registered before January 1, 2024 will have one year (until January 1, 2025) to file their initial reports, while reporting companies created or registered after January 1, 2024 will have 90 days after receiving notice of their creation or registration to file their initial reports.[1] Reporting companies have 30 days to report changes to the information in their previously filed reports and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware, or has reason to know, of the inaccurate information in earlier reports. FinCen will not accept a BOI report until January 1, 2024.
The BOI report requires the reporting company to identify itself and report four pieces of information about each of its beneficial owners: name, date of birth, address, and a unique identifying number and the issuing jurisdiction from an acceptable identification document. Reporting companies formed after January 1, 2024, are required to provide the four pieces of information for the beneficial owners and a document image for company applicants. Individuals can provide their four pieces of information directly to FinCen and may obtain a “FinCen identifier” which can be provided on a BOI report in lieu of the required information about the individual.
Violations for non-compliance may result in civil penalties of $500 per day (up to $10,000) or criminal penalties of up to 2 years in prison.
There are 23 types of businesses that are exempt from the reporting requirements. They are certain types of banks, SEC registrants, certain types of investment companies, tax-exempt entities, and large operating companies with at least 20 full-time employees, more than five million gross sales, and an operating presence in the United States. These entities are already regulated by federal and state governments and already disclose their beneficial ownership information.
Unfortunately, fraudsters are using this new reporting as another opportunity to solicit sensitive information from taxpayers, as seen in the ALERT published on the FinCEN website: FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. 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 e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.
The BOI reporting requirement affects many businesses, their owners, and management team. Although supposedly “final”, the interpretation of the regulation is evolving. While FinCEN has advised that entities requiring assistance with filing should consult their attorneys and/or accountants, some experts advise that this is not an accounting function at all, and assistance is a legal matter. If you do need assistance with this filing, please let us know. If necessary, we will put you in good hands if ours are tied.
Article contributed by Joe Marino CPA
[1] For companies formed after January 1, 2025 the deadline is 30 days.
