By Beth Lane, LLM Tax, and Harris Livingstain, LLM Tax
The Corporate Transparency Act (the “CTA”) was signed into law on January 1, 2021 and became effective on January 1, 2024. The CTA expanded anti-money laundering laws and created new reporting requirements for certain companies doing business in the US. Under its terms, many small businesses are required to report information about their beneficial owners in a Beneficial Ownership Information Report (a “BOI Report”) to the Financial Crimes Enforcement Network (“FinCEN”). FinCEN will use the information to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity. The constitutionality of the CTA is still being litigated across the country and recently, a U.S. District Judge in Alabama ruled that it was unconstitutional. This Alabama decision is not applicable to any other jurisdiction, though, and at this time, the CTA remains in effect. While we continue to monitor the progress of CTA-related litigation, it is important to comply with its provisions so long as it remains valid.
Who Must File:
Most foreign and domestic companies are deemed to be “Reporting Companies” under the law and are therefore required to file a BOI Report with FinCEN. As a general rule, a company is a Reporting Company if it was formed by filing a document with the secretary of state or similar state office. Because sole proprietorships, trusts, and general partnerships are not formed in this manner, they are not considered to be Reporting Companies under the CTA. The CTA also contains a number of notable exceptions, which include large operating companies that have (a) more than 20 full-time US employees, (b) an operating presence at a physical office within the US, and (c) more than $5,000,000 of US-sourced gross receipts reported on its prior year federal income tax return, as well as 501(c)(3) tax-exempt entities, certain entities that are issuers of securities who are registered under the Securities and Exchange Act of 1934, insurance companies, banks, and credit unions. All Reporting Companies that are not specifically excepted under the law are required to file BOI Reports.
What Information Must Be Filed:
Reporting Companies must file the beneficial ownership information (“BOI”) of its beneficial owners and, for entities formed or registered on or after January 1, 2024, company applicants. BOI includes an individual’s full legal name, date of birth, street address and an ID number from a non-expired US passport, state driver’s license, or other government-issued ID card. An image of the document showing the ID number must also be included with the report.
Beneficial Owners: A Reporting Company’s “Beneficial Owners” include (1) any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the Reporting Company; or (2) any individual who exercises substantial control over the reporting company. Individuals with substantial control are those with substantial influence over important decisions about a reporting company’s business, finances, and structure. Senior officers (president, CFO, general counsel, CEO, COO, and any other officer who performs a similar function) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members. There is no requirement that these individuals have actual ownership in the company to be a considered a beneficial owner for reporting purposes.
Company Applicants:
“Company Applicants” include the person who actually files the document that creates or registers the reporting company (e.g., an attorney). Company Applicants must provide the same information that is required of Beneficial Owners, but only if the reporting company is formed or registered on or after January 1, 2024.
Duty to Supplement:
In the event of a change or correction to the beneficial ownership of a Reporting Company or a change or correction to the identifying information contained in a previously filed BOI Report, the Reporting Company is required to file a supplemental BOI Report providing FinCEN with Reporting Company’s accurate BOI. For instance, if a Reporting Company submits a BOI Report containing the physical address of a Beneficial Owner and such Beneficial Owner moves to a new address, the Company is required to submit a supplemental BOI Report containing the Beneficial Owner’s new address.
FinCEN Identifiers:
To relieve the Company of some of the burden of supplementing a previously-filed BOI Report, individuals and Reporting Companies can request a FinCEN Identifier (“FinCEN ID”) to use in place of supplying detailed information on the BOI Report. A FinCEN ID is a unique number assigned by FinCEN to an individual applicant, which is obtained by the applicant’s submission of the same information required of a Beneficial Owner or Reporting Company. If a Beneficial Owner obtains a FinCEN ID, the Reporting Company may provide the Beneficial Owner’s FinCEN ID in lieu of providing the Beneficial Owner’s underlying identifying information. In such instance, if there was a change of address for a Beneficial Owner as described above, the Beneficial Owner would have the obligation to update their FinCEN ID, but the Reporting Company would not be required to file a supplemental BOI Report.
How to File:
BOI reports must be filed electronically. FinCEN’s e-filing portal, available at https://boiefiling.fincen.gov/, provides two methods to submit a report: (1) by filling out a web-based version of the form and submitting it online, or (2) by uploading a completed PDF version of the BOI report. The person who submits the BOI report will need to provide their name and email address to FinCEN. There is no fee for filing the report.
When to File:
For Reporting Companies formed on or after January 1, 2024, an initial BOI report must be submitted within 90 days of their formation. For Reporting Companies formed prior to January 1, 2024, an initial BOI report must be submitted on or before December 31, 2024.
The attorneys at McGuire, Wood & Bissette are happy to assist clients with any questions about the CTA and its requirements. Please contact us at (828) 254-8800 or ctamwb@mwblawyers.com. FinCEN also has a Small Entity Compliance Guide and frequently asked questions to help guide businesses through the reporting requirements. These are available at https://www.fincen.gov/boi/small-business-resources.