Beginning on January 1, 2024, more than 98% of U.S. small business owners are required to comply with a new Federal law called the Corporate Transparency Act (CTA). Reporting companies that were formed before January 1, 2024, have one year to complete their initial Beneficial Ownership Information (BOI or BOIR) report and register it with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). This must be completed by January 1, 2025. Failure to comply with the filing requirements may lead to huge penalties for businesses.
As part of the Anti-Money Laundering Act of 2020 (AML Act), the law is intended to provide law enforcement agencies with information needed to better detect, prevent, and punish terrorism, money laundering, and other crimes that involve United States corporations and limited liability companies.
To be in compliance with the CTA, business owners will need to provide information to the U.S. Government about all individuals who either directly or indirectly exercise substantial control over the reporting company or own or control at least 25% of the ownership interests of the reporting company.
Corporate Transparency Act Requirements
FinCEN will administer and enforce the CTA program which requires the business entities submit details about each business owner through the BOI online reporting form.
The new BOI reporting form is now available for review and entry and businesses are encouraged to seek trusted guidance before filing.
Businesses will be able to obtain a FinCEN Identifier number that they can use to file their initial BOI and will continue using it to provide updates or corrections regarding the ownership or dissolution of the business. Alternatively, the number can be obtained when filing their first report although it is not currently required. Getting an identifier can facilitate submission of BOI reports by more than one individual.
Beneficial Owners
The new FinCEN BOI reports require the collection and submission of information specific to everyone included in the report:
- The individual’s name
- Date of birth
- Residential address
- An identifying number such as one from a passport or U.S. driver’s license
- An image of the identification document
While ownership interest is simple to define, beneficial owners also include those that exercise substantial control over the company. The substantial control threshold is met by those who meet any of four criteria:
- A senior officer
- Has authority to appoint or remove certain officers or a majority of the directors of the reporting company
- An important decision-maker—someone who directs, determines, or has substantial influence over important decisions e.g. the business, finances, or structure of the entity.
- Any other form of substantial control over the company
It’s important to note that parent companies may not file a single BOI on behalf of a group of companies.
BOI Reporting Exemptions and Foreign-Owned Entities
While there are 23 categories of businesses that are exempted from BOI reporting, they are limited to those that are governed by other U.S. Government regulatory requirements or agencies. Some examples include banks, insurance companies, and public utilities.
Foreign-owned companies that are registered to do business in any U.S. State or Tribal jurisdiction are also required to file BOI reports and provide detailed ownership information.
Non-Compliance Exposure
Those who do not comply with the Corporate Transparency Act filing requirements are at risk of having both civil and criminal penalties imposed upon them. Fines, prison terms for up to three years—or both—are at the government’s disposal to apply to those who provide false or fraudulent beneficial ownership information or willfully fail to complete and update beneficial ownership information.
REDW’s Trusted Tax Advisors Are Here to Help
Complying with the new Corporate Transparency Act legislation—or any of the anti-money-laundering and counter-terrorism-financing laws—can be challenging, particularly for more complex organizations. REDW is committed to keeping you up to date on information related to your BOI filing requirements. Our trusted tax advisors are here to help you understand how to determine your filing requirements and provide information to be reported.
Contact James Ortiz or Brandon Remley for additional information.
