Federal Tax

New Reporting Requirements for Businesses

March 12, 2024

New Reporting Requirements for Businesses

Executive summary: Corporate Transparency Act

On January 1, 2024, the Corporate Transparency Act went into effect requiring millions of businesses to file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN).  Failure to comply may result in criminal or civil penalties.

On March 1, 2024, the U.S. District Court of the Northern District of Alabama, Northeastern Division, declared the Corporate Transparency Act unconstitutional and issued a narrow ruling in favor of the plaintiffs. The ruling only applies to the specific plaintiffs in the case, which includes all members of the National Small Business Association (NSBA). FinCEN will continue to enforce the Corporate Transparency Act for all other entities.

Who is required to file?

A corporation, limited liability company or other similar entity that is created by the filing of a document with a secretary of state or similar office under the law of a state is required to file.  Any entity formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a state is required to file. Examples include single member LLCs, multi-member LLCs, partnerships, corporations, trusts, etc.

There are 23 exemptions from the “reporting company” definition. See the footnote for exemptions.[i]

What information is required to be reported?

A reporting company must provide the full legal name, date of birth, the current residential or business street address, and a unique identifying number from an acceptable identification document (passport, driver’s license or other government issued identification document) or a FinCEN identifier for each beneficial owner.

If an exempt entity has a direct or indirect ownership interest in a reporting company, the reporting company must only report the name of the exempt entity.

Who is a Beneficial Owner?

Beneficial owners are individuals who directly or indirectly own or control 25% or more of the “ownership interests” of the reporting company or who directly or indirectly exercise “substantial control” over the reporting company.

A beneficial owner does not include:

  • a minor child if the information of the child’s parent or guardian is reported;
  • (ii) an individual acting as a nominee, intermediary, custodian or agent on behalf of another individual;
  • (iii) an individual acting solely as an employee of the entity and whose control over or economic benefits from such entity is derived solely from the employment status of the person;
  • (iv) an individual whose only interest in the entity is through a right of inheritance; or
  • (v) a creditor of the entity, unless the creditor exercises substantial control over the entity or owns or controls not less than 25% of the ownership interests of the entity.

When should the BOI Report be filed?

Created before January 1, 2024?

File by January 1, 2025.

Created on or after January 1, 2024, and before January 1, 2025?

File within 90 calendar days of formation.

Created on or after January 1, 2025?

File within 30 calendar days of formation.

Who can help me with this?

Please contact your legal adviser for compliance assistance.  The FINCEN website for more information is www.fincen.gov/boi.  The FAQ on the FINCEN website is also useful at www.fincen/boi-faqs.

[i] The exempt entities are the following:

  1. Securities reporting issuer
  2. Governmental authority
  3. Bank
  4. Credit union
  5. Depository institution holding company
  6. Money services business
  7. Broker or dealer in securities
  8. Securities exchange or clearing agency
  9. Other Exchange Act registered entity
  10. Investment company or investment adviser
  11. Venture capital fund adviser
  12. Insurance company
  13. State-licensed insurance producer
  14. Commodity Exchange Act registered entity
  15. Accounting firm
  16. Public utility
  17. Financial market utility
  18. Pooled investment vehicle
  19. Tax-exempt entity
  20. Entity assisting a tax-exempt entity
  21. Large operating company
  22. Subsidiary of certain exempt entities
  23. Inactive entity

 

 

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