Beneficial Ownership Information Reporting: Deadline Approaching

THE CORPORATE TRANSPARENCY ACT HAS BEEN OVERTURNED: BENEFICIAL OWNERSHIP INFORMATION REPORTING BLOCKED NATIONWIDE

The U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCen) is continuing to refine guidance for beneficial ownership information (BOI) as the reporting deadline for entities is approaching on January 1, 2025.

For new companies, the filing dates do differ. Companies that are created or registered after January 1, 2024, but prior to January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file their initial reports. Any reporting company created or registered on or after January 1, 2025, will have 30 calendar days from notice of creation or registration.

Failure to comply with the deadline will result in penalties. Willfully violating the Corporate Transparency Act’s reporting requirements can incur penalties up to $591 per day that a violation is not remedied, a criminal fine up to $10,000 and/or imprisonment of up to two years.

What is the Purpose of Filing BOI?

The BOI reporting provisions are included in the Corporate Transparency Act (CTA), which is part of the Anti-Money Laundering Act of 2020 (AML Act). This rule was created to strengthen the ability of FinCen and other agencies to protect national security, along with preventing and combating money laundering, terrorist financing, tax fraud and other illicit activity. Under the CTA, access to BOI will be granted to federal agencies engaged in national security, intelligence or law enforcement activities. The U.S. Department of the Treasury will also have access in connection with its official duties, as well as state and local law enforcement agencies in connection with criminal or civil investigations.

What Types of Entities are Required to File BOI?

Reports must be filed by domestic and foreign reporting companies. A domestic reporting company is defined as a corporation, LLC or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. A foreign reporting company is defined as a corporation, LLC or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

Who Is Considered to Be a Beneficial Owner and/or Company Applicant?

The rule requires that reporting companies file reports with FinCen that identify individuals who are beneficial owners and company applicants of the entity. In most cases, the company applicant will also be a beneficial owner of the company. Under the rule, a beneficial owner includes any individual who directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. The company applicant can be defined as an individual who directly files the document that creates the entity, or, in the case of a foreign reporting company, the document that first registers the entity to do business in the U.S., as well as the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.

Nonetheless, the rule exempts five types of individuals from the definition of beneficial owner. The following are not considered beneficial owners of a reporting company:

A minor child, provided that the reporting company reports the required information of the minor child’s parent or legal guardian
An individual acting as a nominee, intermediary, custodian or agent on behalf of another individual
An individual acting solely as an employee of a reporting company, in specified circumstances
An individual whose only interest in a reporting company is a future interest through a right of inheritance
A creditor of the reporting company

Are There Exemptions from BOI Reporting?

An exemption applies to entities that employ more than 20 full-time employees in the U.S., have an operating presence at a physical office in the U.S. and demonstrate more than $5 million in gross receipts or sales on their federal income tax return. Besides this exemption, the proposed regulations include 23 statutory exemptions from the definition of a reporting company. Below are some noteworthy entity types that are exempt from the rule:

Securities and Exchange Commission (SEC) reporting companies
Regulated financial service companies, including banks, credit unions, depository institution holding companies, registered securities broker-dealers, registered investment companies and investment advisors, venture capital fund advisors and pooled investment vehicles
Entities registered pursuant to the Commodity Exchange Act
Tax-exempt entities
Subsidiaries of certain exempt entities
Large operating companies
Accounting firms
Inactive businesses

The full list of exemptions from BOI reporting can be found in the final rule by the FinCEN in the National Archives of the Federal Register. FinCen provides a checklist in their Small Entity Compliance Guide to assist organizations with identifying if they are exempt from reporting. You can view that checklist here.

What Information is Required in the BOI Report?

The report will need to include information about the reporting company and information about individual beneficial owners at the time of filing. The reporting company will need to include its full legal name, any trade name or “doing business as” name, current address, jurisdiction of formation and federal taxpayer ID number. It must also provide FinCen with information for each beneficial owner and company applicant, including full legal name, birthdate, address and an acceptable identification document, along with the image of the document. BOI reports will not be available to the public and are not subject to requests under the Freedom of Information Act.

If a reporting company has reason to believe that a report filed with FinCEN contains inaccurate information and voluntarily submits a report correcting the information within 90 days of the deadline for the original report, then the Corporate Transparency Act creates a safe harbor from penalty.

Does an Entity Still Have to File if It Ceases Operation?

Any reporting company that ceased to exist before the reporting requirements went into effect on January 1, 2024, is not required to complete BOI reporting. The company must have completed the process of irrevocably dissolving prior to January 1, 2024.

If a reporting company was created or registered after January 1, 2024, they must fulfill the BOI reporting obligations even if they cease to exist prior to their reporting deadline. Regardless of how soon after creation that a company dissolves, any company established in 2024 must file within 90 days of receiving notice of creation or registration, while companies established in 2025 and beyond must file within 30 days.

If a company ceases to exist before the 30- or 90-day period, there is no requirement for the company to file an additional report with FinCen stating that the company has ceased to exist.

Is a Foreign Company Required to File if the Company Stopped Doing Business in the U.S. Before Reporting Requirements Went into Effect?

A foreign company that ceased to be registered to do business in the U.S. prior to January 1, 2024, does not need to report beneficial ownership information. FinCen considers a foreign company to have ceased U.S. operations when it completes the formal and irrevocable withdrawal of all U.S. registrations.

BOI filing is required for foreign companies registered to do business in the U.S. for any time period after January 1, 2024. For example, if the foreign company started the process of withdrawing its registration prior to January 1, 2024, but the withdrawal was never formally completed, then the company is required to report beneficial ownership information.

How and When Do I File?

As of January 1, 2024, FinCEN is now accepting beneficial ownership information through FinCEN’s secure website. Filing is simple, secure and free of charge, with two filing methods being offered. Instructions can be found on FINCen’s website, along with FAQs and the Small Entity Compliance Guide.

Reporting companies created or registered before January 1, 2024, will have until January 1, 2025, to file their initial reports. This filing is NOT an annual reporting requirement, however, if there are any changes or inaccuracies to information previously reported, the reporting company is required to file an update within 30 calendar days after the date on which the change occurs.[SCB1]

Any reporting companies created or registered after January 1, 2024, will have 90 days after receiving notice of their creation or registration to file. Companies created after January 1, 2025, will have 30 days after receiving notice of their creation or registration to file their initial reports.

How Can I Identify Potentially Fraudulent Correspondence Related to BOI?

FinCEN announced that there have been fraudulent attempts being made 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 will ask the recipient to click on a URL or scan a QR code. These emails or letters are fraudulent. FinCEN does not send unsolicited requests. If you receive an email correspondence like this, please do not respond, click on any links or scan any QR codes.

Who Can I Contact for Professional Assistance with BOI?

Professional assistance related to BOI is considered a legal service requiring the expertise of a qualified attorney. Therefore, Brown Plus recommends that clients contact their legal teams for assistance in determining their individual requirements and/or assistance in filing their BOI with FinCEN.