5 Fast Facts on Beneficial Ownership Information Reporting

Many businesses must soon report new beneficial ownership information (BOI) to the U.S. government. Our earlier article covered a high-level overview of BOI reporting requirements, and now we’re sharing important updates to help you clarify your responsibilities. Read on for five fast facts.

Background

In 2021, Congress enacted the Corporate Transparency Tax Act (CTA), which establishes uniform BOI reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States.

The CTA is designed to help the U.S. government collect information necessary to prevent bad actors from using the U.S. financial system to facilitate money laundering, tax evasion, human and drug trafficking, and other illicit activities.

The CTA authorizes the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, to collect and disclose BOI information to authorized government authorities and financial institutions. Since CTA’s enactment, FinCEN has issued implementing regulations — the basics of which are discussed briefly below.

CLA will not advise on or assist with BOI reporting preparation. We recommend that you reach out to your attorney for assistance in complying with these filings.

5 fast BOI reporting FAQs

1. What companies will be required to report BOI to FinCEN?

All domestic entities and any foreign entity registered to do business in the United States. Entities subject to BOI reporting include a corporation, limited liability company, or any other entity created by the filing of a document with the secretary of state or similar office in the United States.

2. Are there exemptions from BOI reporting?

Yes, FinCEN notes 23 BOI reporting exemptions.

Perhaps the most common exception to BOI reporting is the large operating company exemption. Generally, a company meets this exemption if it has 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. For purposes of the $5 million threshold, the threshold is measured as gross receipts or sales net of allowances on Forms 1120, 1120-S, 1065, or other equivalent tax return. It should be noted, however, that the 20-employee threshold is not applied on a consolidated basis. As a result, a parent company filer of a consolidated C corporation tax return must itself have 20 or more full-time employees to meet the large operating company exception.

Other exemptions apply to Section 501(c)(3) tax-exempt entities and certain types of regulated financial companies.

3. When does BOI reporting start?

Reporting companies created or registered to do business before January 1, 2024, must file initial BOI reports with FinCEN on or before January 1, 2025. Reporting companies created or registered to do business on or after January 1, 2024 and before January 1, 2025, will have 90 days from creation or registration to file their initial BOI reports. Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN. Any changes to previously reported BOI must be reported to FinCEN within 30 days.

4. What information does a reporting company disclose to FinCEN?

A reporting company must report:

• Legal name
• Any trade, doing business as, or trading as names
• The current street address of its U.S. place of business, jurisdiction of formation or registration
• IRS taxpayer identification number
• Type of BOI filing (i.e., initial report, a correction of a prior report, or an update to a prior report)

In addition, for each individual who is a beneficial owner or company applicant, the reporting company must report:

• Individual’s name
• Date of birth
• Address
• Unique identifying number from an acceptable identification document (e.g., driver’s license, passport, etc.)
• Name of the state or jurisdiction that issued the identification document

A beneficial owner is an individual who either directly or indirectly (1) exercises substantial control over the reporting company (e.g., a senior officer or key decision-maker), or (2) owns or controls at least 25% of the reporting company’s ownership interests. A corporate entity owner is “looked through” to its ultimate owners for purposes of determining the 25% ownership test.

Although not required, many filers are encouraged to obtain FinCEN identifiers to help facilitate filing this information.

There is no fee to file BOI reports with FinCEN.

5. Are there penalties for failing to file BOI reports with FinCEN?

Yes, be aware of BOI filing penalties. A person who willfully fails to comply with BOI reporting may be subject to civil penalties of $500 per day (adjusted for inflation it is now $591 per day) and criminal penalties including a $10,000 fine and/or up to two years of imprisonment.