Corporate Transparency Act and Beneficial Ownership Information Reporting

The Corporate Transparency Act (CTA) was enacted to create more transparency in the ownership of entities as a way to reduce tax fraud, money laundering and other illegal activities. As part of the CTA, a new reporting form was created for certain entities to file to report the owners or individuals with substantial control over the entity. This reporting is called the Beneficial Ownership Information Reporting (BOI).

The BOI is reported through FinCEN (Financial Crimes Enforcement Network) and the report is required to be filed starting on January 1, 2024. If your entity was in existence prior to January 1, 2024, you have until January 1, 2025, to get your report filed. If you create a new entity on or after January 1, 2024, you have 90 days to file your report. If you create an entity in 2025, you will have 30 days to file your report.

Who is Required to File? A Reporting Entity is required to file the BOI.

Who is a Reporting Entity? It’s an entity that is a corporation, limited liability company, partnership, or similar entity that is created by filing a document with a Secretary of State’s office and not does fall into one of the exemption categories.

Who qualifies for an exemption? There are 23 different exemptions including, but not limited to: banks and other financial institutions, tax-exempt entities, large operating entities, and inactive entities. See website link below to find a list of all 23 exemptions.

What is a large operating entity? An entity that employes 20 or more full-time employees who are employed in the U.S. (work an average of 30 hours per week), has a physical location in the U.S. that it owns or leases, and filed a federal income tax return in the prior year with $5M or more in U.S. gross receipts or sales.

What is an inactive entity? An entity that was in existence on or before January 1, 2020, is not engaged in an active trade or business, is not owned by foreign person (directly or indirectly), has not had any change in ownership in the preceding 12 months, and does not hold any assets in the U.S. or abroad, including any ownership interest in any corporation, limited liability company, partnership, or similar entity.

What is required to be reported on the BOI? Entity name, address, state of formation, and federal identification number. The form also requires information on each beneficial owner, which includes full legal name, date of birth, residential address, unique identifying number like a driver’s license or passport number, and an image of the document showing the identifying number.

Who is a beneficial owner? A beneficial owner is an individual who directly or indirectly has at least 25% ownership interest in the entity or who has substantial control. Direct or indirect control can occur through being an officer, having authority to appoint or remove officers, board members, or being a decision-maker. Having ownership in an entity can include having a profits or capital interest, or having a financial or contractual arrangement used to establish ownership.

After the BOI is filed in 2024, does it need to be filed each year? No, however, the BOI is to be updated anytime there is a change to the entity or it’s beneficial owners. For example, if a beneficial owner moves, the BOI will need to be updated with the beneficial owner’s new address within 30 days.

What happens if the BOI isn’t filed? If an initial BOI isn’t filed or is filed, but isn’t updated in the required amount of time, and it is determined the entity willfully failed to file and/or update, there is a civil penalty of $500 per day up to $10,000, imprisonment for up to 2 years, or both.

FinCEN’s website for BOI includes the link to filing the form and includes a number of resources, FAQs, and a Small Business Compliance Guide.

Due to the legal nature of the BOI reporting, Greenwalt CPAs, Inc. will not be preparing this form, and we strongly encourage you to consult with legal counsel if you need help with the filing. Additionally, FinCEN has sent out an alert regarding new scams and companies claiming to file these forms on your behalf. However, due to the sensitive nature of the information being requested to file the BOI, we advise that you proceed with caution on those advertisements and use legal counsel.