Prepare Now For New Beneficial Ownership Reporting Requirements

Starting January 1, 2024, many business entities will be required to report information to the U.S.
government about who ultimately owns or controls them, including the business’ owners and officers. This new beneficial ownership information (BOI) reporting requirement is part of the Corporate Transparency Act (CTA), which aims to help law enforcement combat financial crime and protect the U.S. financial system from bad actors.

The CTA is part of the Bank Secrecy Act, a set of federal laws that govern financial transactions. As the CTA is not part of the tax code, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), an agency of the Department of Treasury.

Which entities are required to comply?

Entities organized in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Companies required to report under the CTA (a “Reporting Company”) include but are not limited to corporations, limited liability companies (LLCs), and other U.S.-registered entities, including many small and medium-sized businesses. Foreign companies required to report may include corporations, limited companies or similar entities formed under the laws of a foreign country and registered to do business in any U.S. state or tribal jurisdiction. However, there are several categories of exemptions under the Act (see the links below for more information).

What information needs to be reported?

Companies must report the full name of the Reporting Company, any trade name or doing business as name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number. Additionally, information on the entity’s Beneficial Owners and for new entities, the company applicants, is required.

A “Beneficial Owner” is any individual who, directly or indirectly, either: a) Exercises “substantial control” over a reporting company, or b) owns or controls at least 25 percent of the ownership interests of a reporting company.

A “Company Applicant” refers to the individual who filed the document that created or registered the company. The Company Applicant must only be disclosed for reporting companies created or registered on or after January 1, 2024.

When is the deadline to comply?

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report. A reporting company created or registered on or after January 1, 2024 and before January 1, 2025 will have 90 days to file.

What are the penalties for non-compliance?

Penalties for non-compliance can be significant, resulting in criminal or civil fines and/or imprisonment. Not filing reports timely can result in a $500 per day penalty, up to $10,000, and imprisonment of up to two years.

Where can I learn more?

For more information, visit the beneficial ownership information (BOI) and Frequently Asked Questions.on the U.S. Department of the Treasury’s Financial Crimes Enforcement Network's (FinCEN) webpage. 

Read more at: Tax Times blog