Enacted in 2021, the Corporate Transparency Act (CTA) is meant to enhance transparency in corporate entity structure and ownership with a goal of combating money laundering, tax fraud and similar illicit financial activities. The Financial Crimes Enforcement Network (FinCEN) is a bureau within the United States Department of the Treasury. FinCEN serves as a government-wide multisource financial intelligence and analysis network and has been tasked by Treasury with implementing the CTA. On September 30, 2022, FinCen published as a final rule the Beneficial Ownership Information (BOI) Reporting Requirements (Reporting Requirements) under the CTA. (See, 87 FR 59498.)

To be a “reporting company” under the Reporting Requirements, the company must first be a corporation, limited liability company, or other similar entity that is created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or be formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe. Second, the company is not one of the 23 types of entities exempt from the Reporting Requirements.

Two notable types of entities that need not report are tax exempt entities and large operating companies. A tax exempt entity is an organization that is described in section 501(c) of the Internal Revenue Code of 1986 (Code) (determined without regard to section 508(a) of the Code) and exempt from tax under section 501(a) of the Code. To meet the definition of a large operating company the entity must satisfy all of the following criteria:

• employ more than 20 full time employees;
• more than 20 full-time employees are employed in the United States;
• have an operating presence at a physical office within the United States;
• have filed a federal income tax or information return on a consolidated basis in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales;
• have reported the greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form; and
• when gross receipts or sales from sources outside the United States are excluded from the entity’s gross receipts or sales, the amount remains greater than $5,000,000.

A reporting company must report all beneficial owners or persons that have substantial control over the company. Beneficial owners are defined as individuals who own or control at least 25 percent of the ownership interests of a reporting company. An individual exercises substantial control over a reporting company if the individual meets any of the four criteria: the individual is a senior officer; the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company; the individual is an important decision-maker; or the individual has any other form of substantial control over the reporting company.

For the most part, the burden of the BOI Reporting Requirements fall on small and medium sized businesses. The willful failure to file a report, to update beneficial ownership information previously reported to FinCEN or the willful provision of or attempt to provide false or fraudulent beneficial ownership information can result in civil or criminal penalties.

If your company was created or registered prior to January 1, 2024, you will have until January 1, 2025 to report BOI. If your company is created or registered in 2024, you must report BOI within 90 calendar days after receiving actual or public notice that your company’s creation or registration is effective, whichever is earlier. If your company is created or registered on or after January 1, 2025, you must file BOI within 30 calendar days after receiving actual or public notice that its creation or registration is effective. Any updates or corrections to beneficial ownership information that you previously filed with FinCEN must be submitted within 30 days.

The FinCEN website can be found at: https://www.fincen.gov/.

The FinCEN Small Entity Compliance Guide can be accessed here: https://spelusolawoffice.com/wp-content/uploads/2023/11/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf.