Starting January 1, 2024, business owners will face additional reporting requirements enforced by the Financial Crimes Enforcement Network (FinCEN), in compliance with the Corporate Transparency Act’s (CTA) Beneficial Ownership Information (BOI) Reporting Rule. On September 29, 2022, FinCEN issued a final rule requiring specific companies to report the BOI effective January 1, 2024. The reporting companies are now required to report both the beneficial owners of the entity and the company applicants of the entity. Similar to the Report of Foreign Bank and Financial Accounts (FBAR), which requires taxpayers to disclose ownership interest in foreign financial accounts, the CTA requires taxpayers to disclose ownership interest in domestic and foreign entities.
Who is Required to Report?
Domestic and foreign companies are required to report the CTA’s BOI. Domestic companies include corporations, limited liability companies, or any entity created by filing with the Secretary of State. Foreign companies include corporations, limited liability companies, or any entity formed under the law of foreign countries that are registered to do business in the United States by filing with the Secretary of State.
The following 23 types of entities listed below are exempt from the BOI filings.
- Securities issuers
- Domestic governmental authorities
- Domestic credit unions
- Depository institution-holding companies
- Money-transmitting businesses
- Brokers or dealers in securities
- Securities exchange or clearing agencies
- Other entities registered pursuant to the Securities Exchange Act of 1934 entities
- Registered investment companies and advisers
- Venture capital fund advisers
- Insurance companies
- State-licensed insurance producers
- Entities registered pursuant to the Commodity Exchange Act
- Accounting firms
- Public utilities
- Financial market utilities
- Pooled investment vehicles
- Tax-exempt entities
- Entities assisting tax-exempt entities
- Large operating companies
- Subsidiaries of certain exempt entities
- Inactive businesses
What is a Beneficial Owner?
A beneficial owner is any individual who directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. The rules further define that indirect ownership can be created through any contract, arrangement, understanding, or relationship. For example, a father can indirectly control or own his daughter’s company.
Having substantial control means the person can make important decisions on behalf of the entity. Important decisions include choices on sales, reorganization, dissolution, mergers, major expenditures or investments, issuances of any equity or debt, selection or termination of business lines or ventures, compensation schemes, incentive programs for senior officers, and entry into or termination of significant contracts and amendments of any substantial governance documents, such as articles of incorporation. Alternatively, substantial control can also be indicated by whether the individual serves as a senior officer or has authority over the appointment or removal of any senior officer or the majority of the board of directors. The individual also directs, determines, decides, or influences the important matters mentioned above in the entity.
The following individuals listed below are exempt as beneficial owners.
- A minor child if the parent or guardian’s information is reported
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual
- An individual acting solely as an employee of a reporting company in specified circumstances
- An individual whose only interest in a reporting company is a future interest through a right of inheritance
- A creditor of the reporting company
What is a Company Applicant?
A company applicant is an individual who directly files the document to create or register the reporting company. If more than one individual is involved in the filing, it is the individual who holds the primary responsibility for directing or controlling such filing. The company applicant might be an employee of a business formation service or a family member who is filing the document on behalf of another individual.
Beneficial Ownership Information Reports
On the BOI reports, the reporting company must identify itself, including the name, birthdate, address, unique identifying number of each beneficial owner, and the issuing jurisdiction from an acceptable identification document. Examples of acceptable documents include a non-expired passport or identification card of the individual issued by the U.S. government, state, or local government.
For the reporting companies created after January 1, 2024, the same information is required for each company applicant.
For reporting companies created or registered before January 1, 2024, the deadline to file the initial report is January 1, 2025. For reporting companies created or registered on or after January 1, 2024, they are required to file the initial report within 30 days from the date of receiving the notice of their creation or registration. Once the initial report has been filed, any changes, updates, or corrections to beneficial ownership information require the filing of a report within 30 days after the date on which the change occurs or becomes aware or has reason to know of the inaccuracy of information in previously filed reports.
These reporting requirements are new, and this article is only a summary of who is required to file, what is required to be reported, and when the report is due. If you would like assistance in preparing the report, please contact our International Tax Principal, Evelyn Fernandez, at Evelyn.Fernandez@KROSTCPAs.com.
Co-Authors: Evelyn Fernandez, CPA, MST & Joe Liang, CPA
About the Author
Evelyn Fernandez, CPA, MST, Principal
Tax, International Tax, Manufacturing & Distribution, Not-for-Profit
Evelyn Fernandez is a Tax Principal at KROST. She has been in the public accounting profession for over 15 years. Her areas of expertise include tax planning and compliance for high-net-worth individuals, international entities and individuals, multi-state taxation, partnerships, S corporations, trusts, nonprofit organizations, and entertainment businesses. » Full Bio