We are less than two months away from the due date for initial reports for reporting companies in existence before 2024. Have you or your legal counsel completed your filing yet?
A beneficial ownership information (BOI) reporting requirement for a broad range of business (including single member LLCs) and not-for-profit entities was created under the Corporate Transparency Act (CTA), passed by the U.S. government in fiscal year 2021. This is an important and time sensitive obligation for the vast majority of small businesses and their “beneficial owners” (defined later).
There are stiff penalties for noncompliance, including fines of $500 per day, up to $10,000 per violation, as well as possible jail time of up to two years for failing to file a BOI report with FinCEN when required to do so.
Due to ambiguity as it relates to providing professional services for this BOI filing and it being interpreted by some as a potential unauthorized practice of law, including but not limited to state lawmakers and insurance carriers, AHP cannot assist clients with this filing nor advise clients on this topic. We are, however, providing this as a public service announcement and directing those affected to the FinCEN website link above in order to meet any potential filing requirements by the applicable due date. We also encourage you to consider contacting legal counsel for assistance.
Before explaining further, it is important to note that there are certain exemptions for reporting, which apply to the following industries/businesses: entities that file reports with the SEC, government authorities, banks, credit unions, tax-exempt entities, “large operating entities”, and 11 other industries specific by the Act. “Large operating entities” are defined by these qualifications:
A) business has a physical location that it operates out of within the United States,
B) business has 20 or more full-time employees, AND
C) prior year federal income tax return filed by the business showed more than $5 million of annual U.S.-only gross receipts (business entities that are part of a group that files a consolidated tax return can use the aggregate total sales to determine if they meet the “large operating entity” exemption).
Beneficial owners of applicable entities are the primary target of this new reporting requirement. “Beneficial owner” is defined as someone who exercises (indirectly or directly) substantial control over the company OR owns 25% or more of total ownership interest in the company. For the purposes of the CTA, “ownership” includes all forms of stock, traditional equity, capital or profits, interest in the company, convertible instruments, warrants, rights, options, and privileges to acquire. Separately, any senior officer (ex. CEO, CFO, COO, and general counsel) is considered to have substantial control over a reporting company and must be included on the reporting also.
Beneficial owners of entities required to report must disclose their full legal name, date of birth, address, as well as provide a copy of their non-expired driver’s license, state ID, or passport. Businesses already in existence prior to 2024 have until January 1, 2025 to file. New businesses established on or after January 1, 2024 are required to register within 90 days of creation. New businesses established on or after January 1, 2025 are required to register within 30 days of creation. After the initial report filing, any subsequent changes to a beneficial owner’s personal information triggers an additional requirement to file an updated report with timelines ranging from 30 to 90 days to comply (including correction of an error on the initial registration). If the business is terminated or dissolved, you still may be required to file a final report.
Single member LLCs treated as “disregarded entities” for tax purposes who do not already have their own employer identification number (EIN) do not need to obtain a separate EIN for BOI reporting purposes. When going to report, these LLCs can identify themselves either by using the owner’s social security number (or individual taxpayer identification number), the EIN of another U.S. entity they are owned by, or the first owner up the chain of disregarded entities if they are owned by another disregarded entity or chain of disregarded entities.
Where is this information required to be reported? Reporting is done electronically through a secure filing system via the Financial Crime Enforcement Network (FinCEN) website. To file, and for more information on who has to file, follow this link: https://fincen.gov/boi.
