Beneficial Ownership Information Reporting

In today’s global economy, transparency and compliance in financial transactions have never been more critical. Beneficial ownership information plays a pivotal role in this landscape, ensuring that businesses and financial institutions operate within legal boundaries and adhere to international regulations. This article delves into the intricacies of beneficial ownership, outlining its importance, regulatory framework, and implications for businesses worldwide.

Starting January 1, 2024, a vast number of small business owners are mandated to submit a new, highly personal report under the federal Corporate Transparency Act (CTA) to avoid severe civil and criminal consequences, which could include significant fines and potential imprisonment. In essence, adherence is not optional.

However, numerous businesses impacted by this mandate are either unaware of its critical importance or lack detailed knowledge of its requirements, especially as these regulations continue to evolve.

Thankfully, support and expertise are readily available to guide business owners, along with legal and accounting professionals, through the necessary steps to ensure compliance.

READY TO FILE? Act Now!

What is the Beneficial Ownership Information Report?

• The report in question is known as the Beneficial Ownership Information (BOI) report, a key component of the Corporate Transparency Act passed by Congress in 2021. This act introduces standardized reporting obligations for businesses, detailing the personal identities of those who own a business. Specifically, the BOI report will include personal identifying details of a company’s beneficial owners. The enactment of the Corporate Transparency Act and the requirement for Beneficial Ownership Reporting are measures taken by the U.S. government to combat money laundering, terrorist financing, tax evasion, and other unlawful activities. Indeed, the Corporate Transparency Act forms a part of the broader federal Anti-Money Laundering Act of 2020 (AML Act).

Congress has identified that individuals involved in illicit activities such as money laundering typically operate not under their own names but through LLCs, corporations, and other similar structures. Currently, when these entities are established in the U.S. or foreign entities register to conduct business within the U.S., they are not mandated to disclose the identities of the people who ultimately own or control them. This lack of transparency poses significant challenges for law enforcement in identifying the real individuals behind these entities. Hence, Congress believes that the BOI will aid in safeguarding national interests.”

Business owners are required to submit the BOI to FinCEN, the Financial Crimes Enforcement Network of the U.S. Department of Treasury. FinCEN outlines the regulations, specifying who must file the report, the filing deadlines, and the information that must be included. The CTA represents the most significant federal legislation impacting businesses since the U.S. Securities Laws of the 1930s. While this reporting requirement is new in the United States, it is already a well-established practice in many other developed nations.

Is it mandatory for every US business to submit a Beneficial Ownership Information report?

The mandate covers a broad spectrum, and determining which entities are required to file can be somewhat ambiguous. “Identifying whether their business is impacted is the initial step for small business owners. There are available resources designed to assist in this determination process. By responding to a series of questions, these tools can provide a basic understanding of your filing obligations,” Feldman explains.

Under the existing regulations, there are two categories of entities obligated to submit a BOI, provided they do not fall under any exemptions: 1) domestic reporting companies, and 2) foreign reporting companies.

Business owners can utilize a specific quiz tool to ascertain their need to file. By simply answering a set of questions, they can clarify their status regarding the reporting requirements. It’s crucial to recognize that, as of now, the FinCEN regulations explicitly mention only corporations and LLCs as the types of business entities required to file, though it’s possible that other forms of entities may also be subject to these requirements.

Who is exempt from the Corporate Transparency Act (CTA)?

The Corporate Transparency Act specifies 23 exempt categories, primarily targeting entities already under stringent federal or state oversight, necessitating them to reveal their beneficial ownership details to authorities. This includes:

• Publicly traded companies and entities reporting under the Securities Exchange Act
• Financial institutions such as banks and credit unions
• Money services businesses
• Securities brokers and dealers
• Insurance companies and state-licensed insurance producers
• Investment advisors and pooled investment vehicles
• Public utilities
• Tax-exempt organizations, including 501(c) non-profits
• Entities that are inactive
• Among others

Additionally, there’s an exemption for “large operating companies,” defined as businesses that meet all of the following criteria: employ over 20 full-time employees in the U.S., maintain a physical office within the U.S., and have submitted a federal tax return in the previous year showing over $5 million in gross receipts or sales. The requirement for having “an operating presence at a physical office within the United States” implies that the entity regularly conducts business from a physical location in the U.S., which it either owns or leases, and this location is distinct from any other unaffiliated entity’s business location.

It’s important to note, however, that most small corporations and LLCs likely do not fall under these exemptions. Nonetheless, it’s crucial for business owners to familiarize themselves with these exemptions to accurately determine whether their company is exempt.

What information is required for the Beneficial Ownership Information Report?

Initially, entities mandated to submit a report need to identify their beneficial owners. Following this, they are required to provide information regarding the company along with the personal details of these beneficial owners. Furthermore, companies that were established or initially registered on or subsequent to January 1, 2024, must also include personal information related to their company applicants.

Understanding Beneficial Owners and the Meaning of Beneficial Ownership

A beneficial owner refers to a person who either directly or indirectly 1) holds significant control over the company in question, or 2) possesses or controls at least 25 percent of the company’s ownership stake. Conversely, there are five categories of individuals who are not considered beneficial owners:

• A minor child (though the details of a parent or guardian must be disclosed)
• A nominee, intermediary, custodian, or agent acting for another person
• An employee whose involvement is strictly limited to their employment role
• An individual whose connection to the company is solely through a future inheritance right
• A creditor to the company.

Defining “Substantial Control” in the Context of a Reporting Company

An individual “exercising substantial control” encompasses 1) high-ranking officials, 2) individuals with the authority to appoint or dismiss high-ranking officials, including the board of directors or an equivalent entity, and 3) any person who guides, decides, or significantly impacts the company’s critical decision-making processes.

Simplifying the Process of BOI Reporting: Are There Options?

For those required to file for multiple companies, there’s a facilitative option available. While not mandatory, beneficial owners, company applicants, and reporting companies have the opportunity to request a FinCEN Identifier from FinCEN. This identifier is a unique number assigned to an individual or company.

Spencer explains, “The process involves the FinCEN Identifier application collecting all the personal details that would otherwise need to be included in the Beneficial Ownership Information report. With a FinCEN Identifier, an individual can provide this number to any reporting company where they are a beneficial owner, instead of supplying their personal details and ID to each one. The reporting company can then use the FinCEN Identifier in their BOI report. However, should any information provided in the FinCEN Identifier application change, the applicant is required to submit an updated or corrected form within 30 days.”

A reporting company can also secure a FinCEN Identifier by applying to FinCEN at the same time or after they file their initial report. It’s important to note that each individual or company is eligible for only one FinCEN Identifier. Applications for a FinCEN Identifier can be made through the filing system on FinCEN’s website.

Additional Insights on Filing Beneficial Ownership Information and Completing the Report

Key Insights on the Beneficial Ownership Information (BOI) Filing Process and Reporting Guidelines: This process is exclusively a federal requirement, with no state-level filings necessary. Companies must submit their BOI reports digitally via FinCEN’s online filing system, which is also the platform for any subsequent updates or corrections. Additionally, obtaining a FinCEN Identifier is an option for reporting companies, which can then be included in the report as per the established guidelines. To maintain compliance, it’s essential for business owners, managers, compliance officers, and legal advisors – including those considering the establishment of a new entity or the registration of a non-U.S. entity – to first ascertain whether their business qualifies as a reporting company. If so, they should compile the necessary information, ensuring its accuracy at the time of the initial report submission. I advise setting up an internal mechanism to monitor reported details, facilitating timely updates as required.

Deadline for Submitting Your Beneficial Ownership Information Report:

The guideline is to file it at your earliest convenience.

For any domestic or foreign reporting company established or registered prior to January 1, 2024, the deadline for filing is January 1, 2025.

For domestic or foreign reporting companies that are established or initially registered in 2024, the initial BOI report must be submitted within 90 calendar days from the date they are officially notified of their establishment or registration becoming effective.

Submission Deadlines for Your Beneficial Ownership Information Report

The guideline is to file it at your earliest convenience.

For any domestic or foreign reporting company established or registered prior to January 1, 2024, the deadline for filing is January 1, 2025.

For domestic or foreign reporting companies that are established or initially registered in 2024, the initial BOI report must be submitted within 90 calendar days from the date they are officially notified of their establishment or registration becoming effective.

Is Annual Filing Required for the BOI Report?

Under the Corporate Transparency Act (CTA), you’re obligated to submit just the initial BOI report, along with updates or corrections as needed. It’s essential to monitor the information you’ve reported and submit modifications whenever there are changes.

What to Do If There Are Changes?

It’s highly probable that updates will be necessary: FinCEN predicts approximately 6.6 million businesses will submit report updates in 2024. In subsequent years, an estimated 14.5 million updates are expected annually. This estimate doesn’t even include the potential updates required by millions of individuals with FinCEN Identifiers, who must submit a revised application to FinCEN whenever their personal information changes.

What Should Be Done If There’s an Error in My BOI Report?

Deliberately failing to submit complete or updated beneficial ownership information to FinCEN, or intentionally providing false or fraudulent details, is illegal. Such actions can lead to a civil fine of up to $500 for each day the violation persists, along with criminal penalties of up to $10,000, up to two years in prison, or both. Additionally, the Corporate Transparency Act (CTA) enforces penalties for unauthorized information disclosure. If a report contains inaccuracies at the time of submission, the reporting entity is required to submit a corrected report within 30 calendar days upon realizing or having reason to believe in the inaccuracy.

Seeking Assistance with Your Filing?

FinCEN clarifies that although an individual can submit a report for a reporting company, the ultimate responsibility for the filing rests with the reporting company itself. This principle also applies to the certification process; the reporting company must complete the certification, and any individual filing on behalf of the company will do so in the company’s stead. The initial step is determining whether a business is required to file. Business owners must then decide whether to handle the filing themselves or to engage a third party for assistance. For those seeking support, business owners have the option to enlist services from Griffin and Johnson Tax Prep.

The Role of Financial Examining Professionals Under the Corporate Transparency Act: Enhancing Client Support in Accounting

The introduction of the BOI reporting mandate presents significant implications for the accounting sector. How can accounting firms navigate these changes to safeguard their clients’ interests effectively? Here are key strategies:

Educational Initiatives:

1. Remain informed about the latest updates concerning the CTA.
2. Educate clients on the CTA’s requirements and its impact on their operations.

Policy Enhancement:

• Conduct a thorough review of current anti-money laundering (AML) and know-your-customer (KYC) policies to ensure they are comprehensive and up-to-date.

Comprehensive Training:

• Provide training for employees on the nuances of the CTA alongside AML and KYC compliance protocols.

Risk Management:

• Assess potential risks to clients and identify vulnerabilities within their operations.

Mitigation Strategies:

• Establish and enforce control measures and procedures to address identified risks.

Efficient Information Management:

• Create a streamlined process for assisting clients in collecting necessary data and managing beneficial ownership information securely and confidentially for reporting purposes.

Reporting Assistance:

• Facilitate the submission of reports on clients’ behalf, leveraging specialized solutions to streamline this process.

Continuous Monitoring:

• Regularly verify clients’ adherence to legal requirements, ensuring ongoing compliance.

By adopting these measures, accounting firms can play a pivotal role in guiding their clients through the complexities of the Corporate Transparency Act, ensuring compliance while protecting their interests.