As of January 1, 2024, many companies were required to report information to the U.S. government about who ultimately owns and controls them. It’s the result of a 2021 law, the Corporate Transparency Act—or CTA—which requires reporting companies to file reports with FinCEN, the Financial Crimes Enforcement Network.
FinCEN has been rolling out guidance—including new FAQ information posted as of July 24, 2024. Here’s a look at the updated guidance—and some related provisions.
(You can find a longer summary, including previous FAQs, here.)
Who has to report?
Companies required to report are called reporting companies. Your company may be a reporting company and need to report information about its beneficial owners if your company is a corporation, a limited liability company (LLC), or other entity created by the filing of a document with a secretary of state or any similar office in the U.S., or a foreign company formed under the law of a foreign country that has registered to do business in the U.S. by filing of a document with a secretary of state or any similar office.
A domestic entity like a statutory trust, business trust, or foundation is a reporting company if it was created by filing a document with a secretary of state or similar office. The specifics of whether certain entity types, such as trusts, require filing a document with the secretary of state or similar office to be created or registered depend on state law.
Who does not have to report?
There are several exemptions. In fact, 23 types of entities are exempt from the reporting requirements for beneficial ownership information (BOI). These entities include publicly traded companies, nonprofits, and certain large operating companies. You can check FinCEN’s Small Entity Compliance Guide (updated as of December 2023) for a checklist that may help determine whether your company qualifies for an exemption.
Who is a beneficial owner?
A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company’s ownership interests (examples include shares of equity, stock, voting rights, or any other mechanism used to establish ownership).
What do I have to report?
The report must identify the company, including its legal name and any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names, as well as the physical address of the company (no post office boxes), jurisdiction of formation or registration, and Taxpayer Identification Number (if a foreign reporting company has not been issued a TIN, include a tax identification number issued by a foreign jurisdiction).
The report must also include four pieces of information about each of its beneficial owners: name, date of birth, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document (and a scanned image of the document)—that could include a driver’s license or passport.
If a company has to report a company applicant, the report will also include the company applicant’s name, date of birth, address, and an identifying number from an acceptable identification document (and a scanned image of the document), like a passport or U.S. driver’s license. If the company applicant works in corporate formation—for example, as an attorney or corporate formation agent—the reporting company must report the company applicant’s business address. Otherwise, the reporting company must report the company applicant’s home address.
No financial information or details about the business purpose or operation of the company are required.
How does a company created or registered after January 1, 2024, determine its date of creation or registration?
The date of creation or registration for a reporting company is the earlier of the date on which the reporting company receives actual notice that its creation (or registration) has become effective or a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the domestic reporting company has been created or the foreign reporting company has been registered.
What type of tax identification number should be reported by a reporting company that is disregarded for U.S. tax purposes?
An entity that is disregarded for U.S. tax purposes—a “disregarded entity”—is not treated as an entity separate from its owner for U.S. tax purposes. The “disregarded” label simply means that instead of the entity being taxed separately, the entity’s owner reports the entity’s income and deductions as part of the owner’s federal tax return.
A disregarded entity must report beneficial ownership information (BOI) to FinCEN if it is a reporting company. The entity must also provide an Employer Identification Number (EIN), a Social Security Number (SSN), or an Individual Taxpayer Identification Number (ITIN). If a foreign reporting company has not been issued a TIN, it must provide a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.
Additionally:
- If the disregarded entity has its own EIN, it may report that EIN as its TIN. If the disregarded entity does not have an EIN, it is not required to obtain one to meet its BOI reporting requirements so long as it can instead provide another type of TIN or, if a foreign reporting company has not issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.
- If the disregarded entity is a single-member limited liability company (LLC) or otherwise has only one owner that is an individual with an SSN or ITIN, the disregarded entity may report that individual’s SSN or ITIN as its TIN.
- If the disregarded entity is owned by a U.S. entity that has an EIN, the disregarded entity may report that other entity’s EIN as its TIN.
- If the disregarded entity is owned by another disregarded entity or a chain of disregarded entities, the disregarded entity may report the TIN of the first owner up the chain of disregarded entities with a TIN as its TIN.
How can I get a tax identification number quickly so that I can file an initial beneficial ownership information report on time?
You can get an EIN quickly—and for free—online at IRS.gov. Most reporting companies should be able to use the EIN online application to apply for their EIN. However, there may be situations where a reporting company must file a Form SS-4, Application for Employer Identification Number, to obtain an EIN. That’s particularly true if the responsible party for the applicant is a foreign person who does not have an SSN or ITIN—they will not be able to use the online application portal.
According to FinCEN, if you submit Form SS-4 by fax, you should generally receive an EIN in four business days. If you submit Form SS-4 by mail, you should receive an EIN in 4-5 weeks.
In some circumstances (read: often), it may take six to eight weeks to receive an EIN. Thus, in some limited circumstances, a reporting company with no other tax identification number may be unable to obtain its EIN by its BOI report filing deadline.
A reporting company cannot submit its BOI report without including a tax identification number. If that happens, in addition to making all reasonable efforts to file its BOI report on time (including requesting all necessary information as early as practicable), the reporting company should file its report as soon as it receives its EIN. As a best practice, the reporting company may consider retaining documentation associated with its efforts to comply with the BOI reporting requirements in a timely manner.
Can a reporting company report a P.O. box as its current address?
No. The reporting company address must be a U.S. street address and cannot be a P.O. box.
What address should a reporting company report if it doesn’t have a principal place of business in the U.S.?
If a reporting company does not have a principal place of business in the U.S., the company must report its address in the primary location in the U.S. where it conducts business.
If a reporting company has no principal place of business in the U.S. and conducts business at more than one location within the U.S., it may report as its primary location the address of any of those locations where it receives important correspondence.
If a reporting company has no principal place of business in the U.S. and does not conduct business functions at any location in the U.S., then its primary location in the U.S. is the address of the person that the reporting company has designated to accept service of legal process on its behalf. Sometimes, this is called the reporting company’s registered agent and the address is referred to as the registered office (use that).
How do I report?
You’ll file online. Click over to the FinCEN website and select “File BOIR.”
When do I report?
A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial report.
A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial report—the clock starts to run when the company receives actual notice that its creation or registration is effective or after a secretary of state or similar office provides public notice of its creation or registration, whichever is earlier.
Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from the date of actual or public notice that the company’s creation or registration is effective to file their initial reports with FinCEN.
Do I have to report more than once?
You only have to file an initial report once. This isn’t an annual report.
However, if you have any updates or corrections to information you previously filed with FinCEN, you must submit those changes within 30 days. Those changes could include registering a new business name, a change in beneficial owners (like a new CEO, or a change in ownership interest), or any change to a beneficial owner’s name, address, or unique identifying number previously provided. If a beneficial owner obtained a new driver’s license or other identifying document with a changed name, address, or identifying number, the reporting company would have to file an updated report, including an image of the new identifying document.
Will it cost me anything?
There’s no fee to file the report with FinCEN. However, if you retain a tax or legal professional to help you file, you’ll be responsible for paying those fees.
Do I need to use a tax or legal professional to report?
No. You can use anyone authorized to act on behalf of the company, including an employee, owner, or a tax or legal professional.
What happens if I don’t file a report?
You could land yourself in trouble. A person who willfully violates the reporting requirements may be subject to civil penalties of up to $500 for each day (adjusted for inflation) the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
I thought this was ruled unconstitutional?
Months after the CTA went into effect, a federal court found it unconstitutional. The ruling resulted from a lawsuit filed by the National Small Business United (also known as the National Small Business Association, or NSBA) and Isaac Winkles. On March 1, 2024, U.S. District Judge Liles C. Burke of the Northern District of Alabama, Northeastern Division, found the CTA unconstitutional “because it exceeds the Constitution’s limits on Congress’ power.”
However, while the ruling bars the U.S. Treasury from enforcing the CTA against the Plaintiffs, it does not enjoin enforcement against others.
The government has appealed the ruling.
(Additional actions have also been filed. This could be headed to the Supreme Court—stay tuned.)
How can I find out more?
FinCEN has a BOI webpage. You can also subscribe here to receive updates via email from FinCEN about BOI reporting obligations.
And, of course, the Forbes tax teams will continue to provide updates.
Read the full article here
