FAQs: Understanding the Corporate Transparency Act Beneficial Ownership Information Reporting Rules
FAQs: Understanding the Corporate Transparency Act Beneficial Ownership Information Reporting Rules
by Thomas La
August 17, 2023

The 2021 Corporate Transparency Act (CTA) established a new beneficial ownership information (BOI) reporting requirement for certain companies. The requirement is designed to curb illicit activities by identifying the beneficial owners of companies registered in the U.S. and requires them to report certain information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), starting in 2024.

To help you understand and comply with the new rules, we’ve outlined the key points of the BOI reporting requirements, including which entities are required to report and when, who a beneficial owner is, and what information needs to be included in the BOI report.

When is the due date for reporting a company's beneficial ownership information to FinCEN?

A reporting company created or registered to do business before January 1, 2024, has until January 1, 2025, to file its initial BOI report.

A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial BOI report, for example, 30 days after the state registration date.

When will FinCEN begin accepting and processing BOI reports?

FinCEN will start accepting and processing e-filed BOI reports on January 1, 2024.

What companies are required to report BOI to FinCEN?

Certain companies, referred to as “reporting companies,” will be required to report their BOI to FinCEN. There are two types of reporting companies: domestic reporting companies and foreign reporting companies.

A domestic reporting company is defined as a corporation, a limited liability company, or any other entity created by the filing of a document with a secretary of state or any similar office under state or tribal law.

A foreign reporting company is defined as a corporation, limited liability company, or other entity formed under the law of a foreign country and registered to do business in any U.S. state or in any tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under state or tribal law.

If you had to file a document with a state or tribal-level office such as a secretary of state to create your company, or to register it to do business if it is a foreign company, then your company is a reporting company, unless an exemption applies. For the definitions of both domestic and foreign reporting companies, a “state” means any state of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the United States.

Are there exemptions from the reporting requirement?

Yes. The CTA exempts the following 23 types of entities from the BOI reporting requirement. Note: the most frequently applicable exemption for many private companies is likely to be (xxi).

  • Certain types of securities reporting issuers
  • A U.S. governmental authority
  • Certain types of banks
  • Federal or state credit unions as defined in section 101 of the Federal Credit Union Act
  • Any bank holding company as defined in section 2 of the Bank Holding Company Act of 1956, or any savings and loan holding company as defined in section 10(a) of the Home Owners' Loan Act
  • Certain types of money transmitting or money services businesses
  • Any broker or dealer, as defined in section 3 of the Securities Exchange Act of 1934, that is registered under section 15 of that Act (15 U.S.C. 780)
  • Securities exchanges or clearing agencies as defined in section 3 of the Securities Exchange Act of 1934, and that is registered under sections 6 or 17A of that Act
  • Certain other types of entities registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934
  • Certain types of investment companies as defined in section 3 of the Investment Company Act of 1940, or investment advisers as defined in section 202 of the Investment Advisers Act of 1940
  • Certain types of venture capital fund advisers
  • Insurance companies defined in section 2 of the Investment Company Act of 1940
  • State-licensed insurance producers with an operating presence at a physical office within the United States, and authorized by a state, and subject to supervision by a state's insurance commissioner or a similar official or agency
  • Commodity Exchange Act registered entities
  • Any public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002
  • Certain types of regulated public utilities
  • Any financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010
  • Certain pooled investment vehicles
  • Certain types of tax-exempt entities
  • Entities assisting a tax-exempt entity described in (xix) above
  • Large operating companies with at least 20 full-time employees, more than $5 million in gross receipts or sales and an operating presence at a physical office within the United States
  • The subsidiaries of certain exempt entities
  • Certain types of inactive entities that were in existence on or before January 1, 2020, the date the CTA was enacted

Many of these exempt entities are already regulated by federal and/or state government, and many already disclose their BOI to a governmental authority. Additional information about the exempt entities can be found in the BOI Reporting Regulations at 31 CFR § 1010.380(c)(2). You should consult the text of the regulations, which include specific criteria for the exemptions, before concluding that an entity qualifies for an exemption.

Who is a beneficial owner of a reporting company?

In general, a beneficial owner is any individual who (1) directly or indirectly exercises “substantial control” over the reporting company, or (2) directly or indirectly owns or controls 25% or more of the “ownership interests” of the reporting company. Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company.

For example, an individual will have substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions the reporting company makes. In addition, a senior officer is deemed to have substantial control over a reporting company. Other rights or responsibilities may also constitute substantial control. Additional information about the definition of substantial control and who qualifies as exercising substantial control can be found in the BOI Reporting Regulations at 31 CFR §1010.380(d)(l).

“Ownership interests” generally refer to arrangements that establish ownership rights in the reporting company, including simple shares of stock as well as more complex instruments. Additional information about ownership interests, including indirect ownership, can be found in the BOI Reporting Regulations at 31 CFR §1010.380(d)(2).

FinCEN presumes that most reporting companies will have a straightforward structure of ownership and control. In identifying beneficial owners, for instance, if you are the sole owner of an LLC and there are no other individuals with significant control or ownership stakes, you would be classified as the beneficial owner. This classification is due to both your significant control and your ownership of at least 25% of the company's ownership interests. In this scenario, since there are no other beneficial owners, your information would need to be reported to FinCEN.

What happens if you don’t file?

Failure to comply with the statute can lead to substantial civil penalties, which can be as high as $500 for each day the violation persists, and severe criminal penalties, potentially involving a fine of $10,000 and/or imprisonment for up to two years. So, it's crucial to ensure you meet all beneficial ownership filing obligations.

Need some help with the BOI reporting requirement?

Our tax experts are closely monitoring these reporting obligations so that you don’t have to. We're committed to helping you navigate these changes smoothly and are here to help you understand the full implications of these rules and stay compliant. Reach out to the Armanino tax team for further information or clarification.

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Thomas La - Tax | Armanino
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