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The Corporate Transparency Act (“CTA”) was enacted by Congress on January 1, 2021, as part of the National Defense Authorization Act. The CTA includes significant reforms to anti-money laundering laws and is intended to help prevent and combat money laundering, terrorist financing, corruption, and tax fraud.  The CTA establishes a beneficial ownership reporting requirement for corporations, limited liability companies, and other similar entities formed or registered to do business in the United States. Beneficial ownership reports must be filed with the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury.

When does the CTA take effect?

The reporting requirements under the CTA come into effect on January 1, 2024. Business entities formed prior to such date will have until January 1, 2025, to comply with the CTA’s reporting requirements.

When is the initial beneficial ownership information (BOI) report required to be filed with FinCEN?

Any domestic reporting company formed on or after January 1, 2024, must file a BOI report within 90 days of either receiving actual notice that its formation has become effective or the secretary of state or similar office first providing public notice it’s been formed, whichever occurs first.

Any entity that becomes a foreign reporting company on or after January 1, 2024, must file a BOI report within 90 calendar days of either receiving actual notice that it has been registered to do business or the Secretary of State or similar office first providing public notice it’s been registered, whichever occurs first.

A domestic reporting company formed before January 1, 2024, and an entity that registered as a foreign reporting company before January 1, 2024, must file an initial report no later than January 1, 2025.

Who is required to report beneficial ownership information (“BOI”)?

Certain businesses, referred to by FinCEN as “reporting companies,” will be required to report beneficial ownership information to FinCEN. Reporting companies include domestic and foreign (formed outside the U.S.) businesses.

Domestic reporting companies are corporations, limited liability companies, and other entities that are formed by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe.

Foreign reporting companies are corporations, limited liability companies, and other entities that are formed in a foreign country and are registered to do business in the United States or in any Tribal jurisdiction by submitting a document with the secretary of state or any similar office under the law of a U.S. state or Indian tribe.

A reporting company is required to file the BOI report unless an exemption applies.

Who is exempt from reporting requirements?

The CTA lists 23 categories of entities that are exempt from reporting. View the list of exemptions here: https://www.fincen.gov/boi-faqs

Many of the exempt categories are already subject to similar regulation such as banks, credit unions, tax-exempt entities, public utilities, and some large business entities.

Business entities that do not fall within the scope of the reporting requirements include sole proprietorships, some general partnerships, foreign entities not registered to do business in the U.S., unincorporated associations, and wealth planning trusts.

A “large business entity” is exempt from reporting requirements. What is considered a “large business entity?”

For an entity to qualify as a large business entity, the entity must have the following:

• Filed a federal tax return in the previous year showing more than $5M in U.S.-sourced gross receipts or sales;
• 20 or more full-time employees in the U.S; AND
• Operating presence is at a physical office in the U.S. (not including a residence or shared space, except spaces shared with affiliates).

A tax-exempt entity is exempt from reporting with FinCEN, but what if the entity loses its tax-exemption or a new nonprofit entity does not receive the tax-exempt status from the IRS within 30 days of forming with the secretary of state or similar office?

Tax-exempt entities are also exempt from the CTA filing requirements. These entities include any organization that is described in section 501(c) of the Internal Revenue Code and exempt from tax under section 501(a).

A tax-exempt entity must closely monitor its tax-exempt status to avoid penalties for failure to report a change in status.  If a tax-exempt entity loses its tax-exempt status, then the entity must report beneficial ownership information to FinCEN within 180 days.

As a new entity must report with FinCEN within 30 days of forming or registering to do business in the United States, a nonprofit entity may need to submit the initial report to FinCEN. If the entity receives tax-exempt status approval from the IRS within 30 days of forming the entity, then it is exempt from filing. However, in most cases, a new nonprofit entity will not receive tax-exempt status from the IRS within 30 days of registering with the secretary of state or similar office. On average, it takes 3-6 months for the IRS to issue a determination letter which is the official recognition of federal income tax exemption under 501(c). If a nonprofit entity files the initial report with FinCEN and then receives tax exempt status later, then the entity should file an updated report to state the reporting company is now eligible for an exemption. 

What information must be reported to FinCEN?

The reporting company must indicate the type of report being submitted (initial report, correction of a prior report, or update to a prior report).

Company information

Reporting companies must provide the following information about itself:

• The legal name of the company.
• Any trade name (DBA) used by the company.
• The current street address of its principal place of business. If the principal place of business is not in the U.S., then the company will report the address from which it conducts business in the U.S.
• Taxpayer identification number (EIN/SSN/ITIN, as appropriate).

Beneficial Owner Information

Reporting companies must provide the following information for each beneficial owner:

• The individual’s legal name; date of birth and residential street address.
• A unique identifying number from an acceptable identification document.
• The name of the state or jurisdiction that issued the acceptable identification document.
• An image of the acceptable identification document.

Company Applicant Information, if required

A reporting company created on or after January 1, 2024, must provide the following information for the company applicant:

• The individual’s legal name; date of birth and residential street address.

o   If the company applicant is an individual who engages in the business of business formation (i.e., an attorney, paralegal or service company employee) and submits formation or registration documents in that course of business, then the address submitted may be the company applicant’s business address instead of the residential address.

• A unique identifying number from an acceptable identification document.
• The name of the state or jurisdiction that issued the acceptable identification document.
• An image of the acceptable identification document.

What is an acceptable identification document?

An acceptable identification document is one of the following:

• A non-expired driver’s license issued by a U.S. jurisdiction.
• A non-expired identification document issued by a U.S. jurisdiction, local government, or Indian Tribe used for the purposes of identifying the individual.
• A non-expired passport issued by the U.S. government.
• If the individual does not have any of the three forms of identification described above, then they may provide the identifying number from a non-expired passport issued by a foreign government.

Who is a beneficial owner of a reporting company?

A beneficial owner is any individual (1) who directly or indirectly exercises “substantial control” over the reporting company, or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company. 

An individual can exercise “substantial control” over a reporting company if they direct, determine, or exercise substantial influence over important decisions the reporting company makes. This includes senior officers in the reporting company or individuals who have authority over the appointment or removal of senior officers or a majority of the board.

“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.

For additional information on “substantial control” and “ownership interests” please review the language in the Beneficial Ownership Information Reporting Regulations: https://www.govinfo.gov/content/pkg/FR-2022-09-30/pdf/2022-21020.pdf or on the FinCEN website https://www.fincen.gov/boi-faqs

If a beneficial owner is a business entity rather than an individual, is there a requirement to report beneficial ownership information?

Yes, if a business entity owns 25 percent or more of the reporting company, then the individual beneficial owners of that business entity must be reported.

Are there any exceptions to the definition of “beneficial owner?”

There are a few limited exceptions to who qualifies as a beneficial owner. Under the Rule, minor children (provided a parent or legal guardian is reported as a beneficial owner), nominees, employees (excluding senior officers), future inheritors, and creditors do not qualify as beneficial owners.

Who is a company applicant of a reporting company?

There may be up to two individuals who qualify as a company applicant.

• The individual who directly submitted 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.
• The individual that is primarily responsible for directing or controlling the submission of the relevant document by another.

If only one person was involved in submitting the document to create or register the business, then only one person qualifies as the company applicant. No reporting company may have more than two company applicants. For example, if an individual is creating a new business and prepares and submits the formation document to the Secretary of State, then this individual is the only company applicant. However, if an individual is creating a new business and prepares the formation document but asks their administrative assistant to submit the document with the Secretary of State, then the individual and the administrative assistant are both company applicants. The individual was primarily responsible for directing or controlling the formation document and the administrative assistant directly submitted the document.

Only reporting companies created or registered to do business in the U.S. on or after January 1, 2024, must report company applicant information. This requirement will not apply to an entity created or registered prior to January 1, 2024. Additional information on determining the company applicant can be found here: https://www.fincen.gov/boi-faqs

Is there a fee for submitting the BOI report to FinCEN?

No, there is no fee for submitting the BOI report to FinCEN.

How are BOI reports submitted to FinCEN?

Reporting companies will submit reports electronically through FinCEN’s Beneficial Ownership Secure System (BOSS). This system is currently being developed. Reports will not be accepted prior to January 1, 2024. There is no option to file a paper form.

Note: Beware of potential scam websites! This new filing requirement is likely to result in scam websites or organizations attempting to trick internet users and business owners to enter their beneficial ownership information into a scam website. They may lure users through many communication channels, such as social media, email, and text messaging. Search results are sometimes manipulated through search engine optimization methods, leading to malicious sites appearing in top positions.

Reporting companies should not report beneficial ownership information to any organization except for FinCEN. Websites are often set up to spoof a legitimate site. This is done by using a domain name that looks or sounds like legitimate site addresses. For example, instead of IRS.gov, a spoof site might use IRS.com or IRS.org. When submitting the report to FinCEN, be sure to go to the online filing system on FinCEN.Gov.

Will the Secretary of State or similar offices collect beneficial ownership information?

No. The beneficial ownership information required by the Corporate Transparency Act should only be submitted directly to FinCEN through the online filing system at FinCEN.gov. To protect your privacy, you should not include this information when forming or registering the business with the secretary of state or similar office.

Who will be able to access reported beneficial ownership information and for what purpose?

The CTA authorizes FinCEN to collect and share this information with authorized government authorities and financial institutions, in certain circumstances. FinCEN is actively working on the rulemaking process to establish the beneficial ownership access rule and forms.

Is a reporting company required to update information with FinCEN if beneficial ownership information changes?

Yes, updates and corrections must be submitted to FinCEN within 30 days of becoming aware of the change. Updates include a change of address when a beneficial owner moves to a new address.

If a reporting company files an initial report, but subsequently becomes eligible for an exemption do they have to notify FinCEN?

Yes, if a reporting company subsequently becomes eligible for an exemption from the reporting requirement after the filing of its initial report, this will be deemed a change requiring an updated report.

Is this an annual reporting requirement?

No, the law only requires an initial report, updated report (when necessary), and a corrected report (when necessary).

What is a FinCEN Identifier? How can a FinCEN Identifier be used when reporting?

A FinCEN identifier is a unique number issued by FinCEN to individuals and reporting companies. Each FinCEN identifier is specific to the individual or the reporting company and only one FinCEN identifier can be obtained by that individual or company.

A reporting company may obtain a FinCEN identifier by requesting a FinCEN identifier when they submit a BOI report. The BOI Rule addresses how a reporting company may report an intermediary entity’s FinCEN identifier in lieu of beneficial owner’s information, however, the Access Rule proposed an amendment which would only allow a reporting company to use an intermediate entity’s FinCEN Identifier if the two entities have the same beneficial owners. Further clarification will be provided when the Access Rule is finalized.

An individual may voluntarily apply for a FinCEN identifier. An individual may seek a FinCEN identifier for data security purposes and/or administrative efficiency. Individuals who are likely to be identified as the beneficial owner or company applicant of many reporting companies may prefer the ease of a FinCEN identifier as the individual may provide their FinCEN identifier to reporting companies rather than providing their personal information.

The FinCEN identifier application requires the information that otherwise must be set forth in the initial BOI report about that individual such as the individual’s legal name, date of birth, address, and identifying document type and number.

How does an individual update information from the FinCEN identifier application?

If there is a change to information previously submitted to FinCEN in the application for the FinCEN identifier, the individual must file an updated application reflecting the change within 30 calendar days after the date on which the change occurs.

Will evidence be provided when a BOI report is filed with FinCEN?

Yes.  FinCEN indicates that a submission receipt with the reporting companies FinCEN Identifier, if requested, will be provided at the time of filing.

What happens if a reporting company fails to report beneficial ownership information?

The CTA provides that willfully reporting or attempting to report false or fraudulent beneficial ownership, or willfully failing to report or make updates to the reported data shall be punished with a civil penalty of up to $500/day while the violation continues (up to $10,000) and a criminal penalty of up to two years in prison.

Where can I get more information on this topic?

Information is available on FinCEN’s website: www.fincen.gov/boi

Who do I contact if I have additional questions?

Contact FinCEN if you have additional questions:

Email: FRC@fincen.gov

Phone number: 1-800-767-2825

Website: https://www.fincen.gov/contact

If you need additional assistance understanding FinCEN reporting requirements for your entity, contact a qualified attorney.