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New Beneficial Ownership reporting requirements

BY KEVIN SANOK, EA, MSA

BUSINESS OWNERS need to know that CTA, BOI, and FinCEN are important acronyms corresponding to new reporting requirements to help fight financial crimes. The 2021 bipartisan Corporate Transparency Act (CTA) mandates that corporations, including limited liability companies, partnerships, and other similar entities doing business in the United States, must report their Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a Bureau of the US Department of the Treasury.

The data shared by the reporting companies will enable FinCEN to create a secure, non-public database that law enforcement and financial institutions can access to investigate and prevent financial crimes. According to FinCEN’s website, this database will “provide essential information to law enforcement, national security agencies, and others to help prevent criminals, terrorists, proliferators, and corrupt oligarchs from hiding illicit money or other property in the United States.”  FinCEN considers beneficial owners:

• Someone who, directly or indirectly, exercises substantial control over an entity or owns 25% or more of the ownership interest

• A person who holds a fiduciary position within a trust structure owning an interest in a reporting company

• An investor who “holds shares indirectly, through a bank or broker-dealer. Beneficial owners holding their shares at a broker-dealer or bank are sometimes said to be holding shares in ‘street name.’ The majority of US investors own their securities this way,” according to the Securities and Exchange Commission Investor website

Each reporting company must submit four pieces of information on each of its beneficial owners:

• Full legal name

• Date of birth

• Home address

• Unique identifying number and issuing jurisdiction (such as a secretary of state) from an acceptable identification document

The data shared by the reporting companies will enable FinCEN to create a secure, non-public database that law enforcement and financial institutions can access to investigate and prevent financial crimes.

Companies created on or after January 1, 2024, must also report the company applicant. This is the person primarily responsible for filing the formation or registration document of the reporting company.

The formation date of a company impacts when they must file with FinCEN. Companies formed before January 1, 2024, have until January 1, 2025, to file. Companies formed during 2024 must file their report with FinCEN within 90 days of formation along with the four pieces of information mentioned above and document images for company applicants. The FinCEN report must include details on the reporting company, beneficial owners, and the company applicants. Companies formed after January 1, 2025, must file within 30 days.

The BOI report only needs to be submitted once unless the filer needs to update information. If changes are required, the reporting company must file an updated report within 30 days.

The CTA includes penalties for non-compliance, such as a $500 per day fine and possibly up to two years in prison.

As with most things, there are exceptions, and FinCEN lists 23 of them. The most noticeable being that “large operating companies with more than 20 full-time employees, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the United States” are exempt from the reporting requirement as well as very small companies, such as sole proprietorships, since they don’t register in the first place.

Small business owners must pay heed to these new requirements. Make sure to contact your tax professional for further guidance.

Kevin Sanok, EA, MSA is a manager at Whisman, Giordano & Associates and has nearly 15 years of accounting experience. His specialties include taxation C-Corporations, fiduciaries, high-wealth individuals, not-for-profit organizations, partnerships, and S-Corporations.