MARCH 2024 UPDATE:
The rules of engagement are changing for the Beneficial Ownership Information (BOI) filing requirement. On March 1, 2024, the U.S. District Court for the District of Alabama ruled the Corporate Transparency Act (CTA) unconstitutional in the case of National Small Business Association v. Yellen. This decision suspends the requirement for small businesses to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), as well as halting enforcement actions and compliance concerns.
However, experts expect an appeal, likely to the Supreme Court, indicating that this is a temporary suspension until a final decision is reached.
Here’s a summary of what you need to know now:
- On March 1, 2024, a federal court in Alabama declared the Corporate Transparency Act (CTA) unconstitutional in the case of National Small Business Association v. Yellen.
- The ruling suspends the requirement for small businesses to disclose beneficial owners to FinCEN, along with enforcement actions and compliance concerns.
- Experts anticipate an appeal, likely reaching the Supreme Court, making this a temporary suspension until a final decision.
- It is important to note that, at this time, the ruling is limited in its application to the plaintiffs alone. The CTA, therefore, remains in effect for all other taxpayers who meet the filing requirements.
WATCH THIS SPACE FOR FURTHER UPDATES
What is Beneficial Ownership Information?
Spearheaded by the Corporate Transparency Act and passed by the U.S. Congress in 2021, the BOI regulation aims to create a comprehensive beneficial ownership registry for U.S. legal entities. The CTA, aimed at combating money laundering, mandates LLCs to disclose beneficial ownership information to FinCEN. This ruling originates from a lawsuit filed by the National Small Business Association, representing over 65,000 businesses nationwide. The U.S. government defended the CTA’s constitutionality based on its purposes related to foreign affairs, commerce, and tax collection; the Act it was enacted to address concerns related to illicit activities facilitated by opaque ownership structures, prompting the need for a robust reporting mechanism.
Beneficial ownership information refers to the identifying details of individuals who directly or indirectly own or control a company. It’s aimed at revealing the true individuals behind a business, as opposed to just the named directors or shareholders. The Corporate Transparency Act was enacted to address concerns related to illicit activities facilitated by opaque ownership structures, prompting the need for a robust reporting mechanism.
What is Beneficial Ownership Information reporting?
Beneficial ownership information reporting refers to the disclosure of individuals who ultimately own or control a company or other legal entities. When authorities or regulatory bodies have access to this data, they can:
- Better trace and understand the flow of money
- Identify potential risks
- Prevent illicit activities
The reporting typically includes details about individuals who own or control a certain percentage of shares or voting rights in a company, have significant influence or control over the company, or play a key role in its decision-making processes.
The reporting landscape: who, when, and how?
WHO: What entities are required to collect beneficial ownership information? Generally, if you’ve formed an LLC, S-Corp, or C Corp, a BOI report is mandatory unless you qualify for one of the 23 exemptions outlined in the Corporate Transparency Act (CTA). Sole proprietorships and most general partnerships are likely exempt, given their absence of a formation document filing requirement.
WHEN: Reporting companies created or registered before January 1, 2024, have until January 1, 2025, to file their initial BOI reports. The submission will be electronic, conducted through FinCEN’s website, with no associated fees.
HOW: The form to report beneficial ownership information has yet to be made available. Once available, information about the form will be posted on FinCEN’s beneficial ownership information webpage.
What about businesses registered in 2024?
FinCEN is extending the deadline for reporting companies created or registered in 2024 to file their initial beneficial ownership information (BOI) reports. These companies will have 90 calendar days from the date of receiving actual or public notice of their creation or registration becoming effective to file their initial reports, giving them more time to become familiar with FinCEN’s guidance and educational materials and to resolve questions that may arise in the process of completing their initial BOI reports.
Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days to file their initial BOI reports.
You may also be interested in: Tax & market updates from our 2024 Financial Planning Webinar
What information is required for Beneficial Ownership?
Your BOI report entails crucial details about your company, such as its legal name, address(es), and taxpayer identification number. Equally significant is the disclosure of personally identifiable information for each beneficial owner, defined as individuals with at least 25% ownership or substantial control. The required information includes names, birthdates, addresses, and identifying numbers from official documents.
Who can access BOI information?
Concerns about the security and confidentiality of the disclosed information are valid. FinCEN restricts access to authorized entities, including federal and state law enforcement, national security agencies, and certain financial institutions, with reporting company consent. Stringent protocols and secure systems are mandated to safeguard the information from unauthorized access or misuse.
Staying compliant with updates and corrections
The responsibility doesn’t end with the initial filing. If any of your information changes, you must submit an updated report within 30 days. Similarly, inaccuracies discovered post-filing necessitate a corrected report within the same timeframe.
Exceptions and exemptions
While the majority of small businesses might not qualify for exemptions, it’s crucial to understand the 23 exemptions allowed by the Corporate Transparency Act. For example, large operating companies with over 20 full-time employees, $5 million in gross receipts, and a physical U.S. office presence, can qualify as exempt entities. Notably, FinCEN emphasizes that entities already heavily regulated, such as publicly traded companies and financial institutions, are also exempt. Certain types of inactive entities that were in existence on or before January 1, 2020, are also exempt.
Next steps for small business owners
The Treasury Department has yet to establish the BOI reporting platform, estimated to cost $82 million for the establishment and over $35 million annually for maintenance. FinCEN will continue developing guidance to assist reporting companies in fulfilling their obligations.
In the meantime, small business owners must familiarize themselves with the intricacies of this regulation to avoid penalties and ensure a smooth transition into this new era of corporate transparency. By staying informed and proactive, businesses can navigate the complexities and contribute to the broader goal of fostering financial transparency and integrity.
Where can I find more information about BOI reporting?
FinCEN will continue to provide guidance on how to submit beneficial ownership information.
Frequently Asked Questions: https://www.fincen.gov/boi-faqs
Small Entity Compliance Guide: https://www.fincen.gov/boi/small-entity-compliance-guide
FinCEN’s BOI Webpage: https://www.fincen.gov/boi