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2024 BOI Reporting Requirement

Understand beneficial ownership information reporting requirements under the Corporate Transparency Act

As of January 1, 2024, tens of millions of (small) business owners must file a new, and very personal, report as part of the federal Corporate Transparency Act (CTA) – or they risk harsh civil and criminal penalties, including hefty fines and possible time behind bars. In other words: compliance is mandatory.

But many affected businesses don’t understand the seriousness of this requirement or even know about its ins and outs – and the rules continue to change.

Fortunately, there are resources and experts available to help business owners – as well as legal and accounting professionals – understand what they need to do right now.

1. What is the Beneficial Ownership Information report & the Corporate Transparency Act?

The actual report is called the Beneficial Ownership Information (BOI) report – part of the Corporate Transparency Act that Congress passed in 2021 and which establishes uniform reporting requirements for businesses. The BOI lays out in personal detail who owns a business; read: this report will contain personal identifying information about a company’s beneficial owners. The Corporate Transparency Act and Beneficial Ownership Reporting is part of the U.S. government’s efforts to crack down on money laundering, financing of terrorism, tax fraud, and other illegal acts. In fact, the Corporate Transparency Act is part of the federal Anti-Money Laundering Act of 2020 (AML Act).

“According to Congress, bad actors – people who are engaged in money laundering and other illicit activities – don’t do it in their own name. They do it through LLCs, corporations, and other similar entities. Right now, when these types of companies are created in the U.S. – or when they’re created in foreign countries and register to do business in the U.S. – they aren’t required to provide the names of the individuals who ultimately own or control the entity. And that means law enforcement has trouble finding out who the individuals are behind these entities. That’s why Congress says that the BOI will help protect national interests,” says Sandra Feldman, Publications Attorney at Wolters Kluwer CT Corporation.

Business owners file the BOI with FinCEN – the U.S. Department of Treasury’s Financial Crimes Enforcement Network, which issues the regulation providing the details on who must file a report, when it has to be filed, and what information has to be reported. The CTA is the most impactful piece of federal legislation affecting businesses since the U.S. Securities Laws from the 1930s. And while this type of report is new to the United States, it’s already quite common in many other developed countries.

2. Does every US business have to file a Beneficial Ownership Information report?

The requirement is pretty far-reaching, and it’s not always clear which entity must file. “The first step for small business owners is to figure out if their company is affected. There are tools available to help figure out this part, where you can answer a few questions, and in the end, it will give you a general indication of whether or not you have to file,” says Feldman.

Based on the current rule, two types of reporting companies have to file a BOI – unless they qualify for an exemption: 1) a domestic reporting company, and 2) a foreign reporting company.

3. Who is exempt from the Corporate Transparency Act?

There are 23 categories of entities that are exempt. Most are for entities that are already subject to close federal or state regulation and thus already have to disclose their beneficial ownership information to the government. For example:

There are 23 categories of entities that are exempt. Most are for entities that are already subject to close federal or state regulation.
  • Publicly traded companies and other entities that file reports under the Securities Exchange Act
  • Financial institutions (banks, credit unions)
  • Money services businesses
  • Securities brokers and dealers
  • Insurance companies
  • State-licensed insurance producers
  • Investment advisors, pooled investments
  • Public utilities
  • Tax-exempt entities, including 501(c) non-profits
  • Inactive entities
  • And more

There’s also an exemption for so-called “large operating companies.”  Those are companies that 1) employ more than 20 full-time employees in the U.S., 2) operate at a physical office in the U.S., and 3) have filed a federal tax return for the previous year reporting gross receipts or sales of more than $5 million. The term “has an operating presence at a physical office within the United States” means an entity regularly conducts its business at a physical location in the U.S. that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity. “Again, most small corporations and LLCs probably do not qualify for an exemption, but you should still be familiar with them to know for sure if your company is exempt or not,” says Duynstee.

4. What information is required for the BOI report?

First, those required to file a report must determine who their beneficial owners are. Then, they have to report the information about the company and the personal information about their beneficial owners. Plus, companies created or first registered on or after January 1, 2024, also have to report the personal information for their company applicants.

5. What is a Beneficial Owner & what does Beneficial Ownership mean?

A beneficial owner is an individual who, directly or indirectly, either 1) exercises substantial control over the reporting company, or 2) owns or controls at least 25 percent of its ownership interests. On the other end, there are five types of individuals who do NOT count as beneficial owners:

  1. A minor child (although the personal information of a parent or guardian has to be reported)
  2. A nominee, intermediary, custodian, or agent of another individual
  3. An employee acting solely as an employee
  4. An individual whose only interest in a reporting company is a future interest through a right of inheritance
  5. A creditor of the reporting company.

6. What is considered “substantial control” over a reporting company?

An individual “exercising substantial control” includes 1) senior officers, 2) people who can appoint and remove senior officers, including the board of directors or similar body, and 3) anyone who directs, determines or has substantial influence over important decisions made by the company.

7. Who is a “company applicant”?

“Simply put, a company applicant is the individual who files an application to form a corporation, LLC, or other entity formed by filing a document with a state, or who registers or files an application to register a non-U.S. entity in the U.S. And if more than one individual is involved in the filing of the document, the company applicant is the person who is primarily responsible for directing or controlling the filing,” says Feldman.

8. What level of personal detail needs to be included?

For the company section, you have to include the reporting company’s 1) full legal name, 2) any trade or “doing business as” names, 3) complete current street address of the principal U.S. place of business, 4) the state, tribal or foreign jurisdiction of formation, and 5) the IRS Taxpayer Identification Number (TIN). For a foreign reporting company, 4) is the state or tribal jurisdiction where the company first registers, and 5) will be a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

For beneficial owners or company applicants, applicable businesses must report their 1) full legal name, 2) date of birth, 3) current residential street address (except for company applicants acting as such in the course of their business, who must give their business address), 4) an identifying number from an acceptable document. Acceptable documents include a current U.S. passport, driver’s license or other state or local ID, Indian tribe ID or – if the individual has none of those – a foreign passport, and an image of the document from which the unique identifying number was obtained. Alternatively, an individual can also request and use a FinCEN unique identifying number.

“Now, let’s say that an exempt entity has or will have a direct or indirect interest in a reporting company, and an individual is a beneficial owner of the reporting company exclusively by virtue of the individual’s ownership interest in the exempt entity. In that case, the reporting company only needs to name the exempt entity and doesn’t need to report the other information in respect of the business owner,” says Feldman.

9. What will FinCEN do with my information? Who will have access to it?

The information collected will be kept in a private database maintained by FinCEN, and it will not be accessible to the public. In fact, FinCEN is required to implement protocols to safeguard beneficial ownership information, build a secure system to store the information and establish procedures to ensure that only authorized users can access the information and only for authorized purposes.

However, FinCEN is authorized to disclose BOI to a limited group of requestors. These include:

  1. Federal agencies engaged in national security, intelligence and law enforcement
  2. State, local, and Tribal law enforcement agencies with a court order
  3. The Treasury Department
  4. Financial institutions – with the company’s consent, for customer due diligence purposes
  5. Government regulators of financial institutions to determine the compliance with customer due diligence laws
  6. Certain foreign authorities requesting information through a U.S. agency.

If or when the reporting company ends, the information will stay on file for at least five years after that.

10. Are there ways to make BOI reporting easier?

There’s an option to make things easier for those who have to file for several companies. This isn’t required, but beneficial owners, company applicants, and reporting companies can apply to FinCEN for a unique number called a FinCEN Identifier.  That’s a unique number that’s issued for that individual or company.

“The way it works is that the FinCEN Identifier application asks for all the personal information that would have to be reported in the Beneficial Ownership Information report. Now, the individual can simply provide their FinCEN Identifier to each reporting company in which they’re a beneficial owner, rather than giving each company their personal information and ID. The reporting company can then include the FinCEN Identifier on their BOI report. Of course, if any information in the FinCEN Identifier application changes, the applicant still has to file an update or correction within 30 days,” says Spencer.

A reporting company can also obtain a FinCEN Identifier by submitting to FinCEN an application at or after the time that the entity submits an initial report. Each individual or company can only get one FinCEN Identifier. Applications for a FinCEN Identifier can be submitted via the filing system on FinCEN’s website.

11. What else should I know about the Beneficial Ownership Information filing process and how to file a beneficial ownership report?

This is a federal filing. There is no state filing involved. Your company’s BOI report has to be submitted electronically through a filing system on FinCEN’s website. That’s also where all updates and corrections will be filed. A reporting company can also get a FinCEN Identifier, and that number can then be reported, based on the guidelines.

12. When do I have to submit my Beneficial Ownership Information report?

In short: As soon as possible.

Any domestic reporting company or foreign reporting company created or registered before January 1, 2024, must file a report by January 1, 2025.

Any domestic reporting company or foreign reporting company created or first registered in 2024 must file the initial BOI report within 90 calendar days of the date on which it receives actual or public notice that its creation has become effective.

13. Will I have to file the BOI report every year now?

The CTA only requires an initial BOI report, an updated report (when necessary), and a corrected report (when necessary). You will have to keep track of all the information you reported and file updates when it changes.

14. What happens in case of changes?

“There’s a good chance you might have to file an update: FinCEN estimates that about 6.6 million businesses will file updates to their reports in 2024 alone. And every year after that, 14.5 million updates will likely be filed. That’s not even taking into account yet the updates that perhaps millions of individuals who have obtained FinCEN Identifiers will have to file when their personally identifiable information changes , as they will have to file an updated application with FinCEN,” says Feldman.

“Here’s something important to remember now to save yourself headaches down the line, because it’s not even just about the first filing: keep track of the information you’re reporting. That way, if anything changes, you can file timely updates when necessary,” says George May, Vice President, Small Business Segment with Wolters Kluwer.

FinCEN estimates that about 6.6 million businesses will file updates to their reports in 2024 alone. And every year after that, 14.5 million updates will likely be filed.

 

There are several scenarios where change will – or will not – require filing an update to the BOI report:

  • If there is any change in the information reported about the reporting company or its beneficial owners, the reporting company must file an updated report within 30 days of the change. This includes a change in beneficial owners and if the reporting company becomes eligible for an exemption.
    • If a beneficial owner dies, an updated report identifying new beneficial owners must be filed within 30 calendar days of the settlement of the beneficial owner’s estate.
    • If a reporting company meets the criteria for an exemption after it already filed the initial report, it will need to file an updated report that indicates the filing entity is no longer a reporting company.
  • If an entity was exempt but no longer is, it must file a BOI report within 30 days of no longer meeting the criteria for an exemption.
  • Reporting companies do not have to update information on company applicants. But they do still have to file a correction if any information previously reported is inaccurate about their company applicants. Also, when there is a change in the name, date of birth, address or unique identifying number on the document, reporting companies are required to update the image of the identifying document.
  • If an individual or reporting company applied for a FinCEN Identifier and the submitted information changes, the individual or reporting company must file an update within 30 days.

15. What happens in case of a mistake in my BOI report?

It is unlawful for any person to willfully fail to report complete or updated beneficial ownership information to FinCEN or willfully provide false or fraudulent information. Violators are subject to a civil penalty of up to $500 for each day the violation continues, and criminal fines of up to $10,000, imprisonment for up to two years, or both. The CTA also imposes penalties for the unauthorized disclosure of information. If a report was inaccurate when filed, the reporting company has to file a corrected report within 30 calendar days after becoming aware of the inaccuracy or has reason to know of the inaccuracy.

16. What if I need help with the filing?

FinCEN states that while an individual may file a report on behalf of a reporting company, the reporting company is ultimately responsible for the filing. The same is true of the certification. The reporting company will be required to make the certification, and any individual who files the report as an agent of the reporting company will certify on the reporting company’s behalf.

How does the BOI reporting requirement impact the accounting industry?

The CTA impacts tens of thousands of accounting firms. In fact, it’s important for accountants to understand the reporting requirement: they might easily assume they are exempt, but that’s not entirely so. There are two scenarios accounting professionals need to consider to ensure compliance with the BOI reporting requirement – for themselves and their clients.

Scenario 1: Accounting firms might need to advise their reporting company clients on how to comply with the Corporate Transparency Act’s BOI reporting requirement.

Most of the entities and individuals that are subject to the CTA requirements are clients of accounting firms – and they look to their certified public accountants (CPAs) as trusted advisors regarding the CTA and FinCen’s BOI reporting rule. “Accounting firms already handle tax returns and other compliance reporting for their clients, which means they have the most detailed information regarding the entities and their ownership. So it’s a logical step for clients to rely on their CPAs to handle the BOI reporting,” says Mark Friedlich, VP of U.S. Government Affairs with Wolters Kluwer Tax & Accounting North America.

So how can accounting firms help protect their clients’ interests? They should take several steps:

  • Education: 1) Stay up-to-date on the latest developments related to the CTA. 2) Ensure that their clients are aware of the CTA and its implications.
  • Policy review: Review their existing anti-money laundering (AML) and know-your-customer (KYC) policies and procedures to ensure that they are up-to-date and effective.
  • Training: Train staff on the CTA and AML/KYC compliance requirements.
  • Risk assessment: Identify any potential risks associated with their clients.
  • Risk mitigation: Implement appropriate controls and procedures.
  • Information gathering: Develop a process for helping clients gather the necessary information and handling beneficial ownership information in a confidential and secure manner to file the required reports.
  • Filing: Submit the reports on behalf of their clients – see how our dedicated solution will simplify this process.
  • Monitoring: Check for their clients’ compliance with the law on an ongoing basis.

Scenario 2: An accounting firm could be a reporting company and have to file on its own behalf.

At first glance, it might look like all public accounting firms are statutorily exempt from being a reporting company. But the exemption actually only applies to 1,700 accounting firms (both U.S. and non-U.S. firms) registered with the Public Company Accounting Oversight Board (PCAOB), as required by the Sarbanes-Oxley Act of 2022. Also, accounting firms with more than $5M in gross receipts and 21 or more full-time employees (FTEs) are exempt, and the great majority of firms fall well below these thresholds. Considering that there are currently more than 46,000 public accounting firms in the U.S. (according to the AICPA), that means tens of thousands of firms do need to submit a BOI report.

“The rationale is that firms that provide assurance and audit services are obligated to report similar data as that required by the CTA. That’s why these firms are exempt. But all other accounting firms still need to comply with the reporting requirement,” says Friedlich.

Bottom Line

Compliance with the federal Corporate Transparency Act (CTA) is mandatory. The BOI reporting requirement affects tens of millions of (small) business owners, as well as legal and accounting professionals. If they don’t comply, they risk harsh civil and criminal penalties, including hefty fines (up to $591/day) and possible time behind bars.

Excerpts from an article by Wolters Kluwer 

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