** This blog was last updated 12/6/23 **
Congress passed the Corporate Transparency Act of 2021 (CTA) to enhance transparency and combat illicit activities such as money laundering, terrorism financing and tax evasion. As part of this legislation, some businesses may soon be required to report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury — providing contact information on many entities, as well as those who own or control certain entities.
This program is a federal effort at data collection that will directly or indirectly impact corporations, limited liability companies, and other similar entities formed or registered under state law on an ongoing basis. The information in this type of database has never been compiled before, since typically entity formation and creation are handled at the state, tribal or foreign government level. As a result, owners and management must be aware of the new rules and know if and when they need to comply.
Below are important general Q&As to help companies understand the new regulations and their implications.
The first step to this program is identifying your reporting company. A reporting company meets the following definition:
If your company meets the definition of a reporting company, then a filing is required.
The CTA does not require an entity to report BOI if it can be categorized in at least one of 23 types of entities exempted from the reporting obligation:
However, there are many nuances to these exemptions, so you must reference FinCEN guidance if you think your business is exempted from filing. For example, the requirements behind the large operating company exemption state a company must:
In addition, if an entity is initially exempted from reporting, a future change in entity activity or classification could unexpectedly trigger a future filing requirement.
FinCEN estimates that in the first year of the program (2024), more than 39 million reports will be filed, which will take 126 million hours at a compliance cost of over $22 billion.
If your entity meets the definition of a reporting company, your next step is to identify each beneficial owner and applicant.
A beneficial owner is defined as someone who:
An applicant is defined as any individual who, for entities created on or after Jan. 1, 2024:
The reporting company is responsible for reporting BOI about their organization and for each beneficial owner and applicant. The information required is as follows:
FinCEN will begin accepting reports on Jan. 1, 2024, but when your company may be required to report will depend on when your company was (or is) established.
| Date Company Was/Is Established | Initial BOI Report Submission Deadline |
|---|---|
| Prior to Jan. 1, 2024 | Jan. 1, 2025 |
| On or after January 1, 2024, and before January 1, 2025 | 90 days from formation |
| 2025 or later | 30 days from formation |
If there is any change to a report that has been already made with FinCEN (such as new address, new contact information, change in control or correction of information), you must report changes within 30 days after the change is made or the error is discovered. Additionally, if your company previously qualified for an exemption, but no longer qualifies, you are required to file a BOI report within 90 calendar days of the date your company stops qualifying for exemption.
Reporting companies who do not comply will the CTA’s reporting obligations may face civil penalties up to $500 per day that a violation continues. Criminal penalties include a $10,000 fine and/or up to two years of imprisonment. If a report is filed that contains mistakes or an omission of information, you can correct the report within 30 days to avoid penalties.
The CTA emphasizes the importance of maintaining the confidentiality and security of the reported information. FinCEN is required to establish secure systems to store and protect the data, ensuring it is only accessible to authorized government agencies for legitimate purposes.
FinCEN will permit federal, state, local and tribal officials, as well as certain foreign officials, to obtain BOI for authorized activities related to national security, intelligence and law enforcement. Financial institutions will also have access to information with consent of the reporting company.
The Corporate Transparency Act’s BOI reporting requirements represent a significant step toward the government’s efforts at collecting entity information, which it believes will protect the U.S financial system from illicit use and promote transparency in the business sector. Compliance will involve additional administrative burdens, but it can also assist businesses in conducting thorough due diligence on potential clients, partners and suppliers.
There are currently two bills in Congress that propose a delay in reporting, but business owners and management teams must be aware this extensive effort is on the near-term horizon. For existing entities, no immediate action is likely needed until the latter half of 2024. For new entities created in 2024, action will be important so that the initial report is filed timely. Also note that states could establish their own requirements. For example, as of the publish date of this article, the State of New York has a bill creating a similar transparency requirement that is awaiting Governor Kathy Hochul’s signature.
Beyond the Congressional-proposed delays of BOI reporting requirements, there are other unknowns — such as what the reporting form looks like and how long it will take to complete, and when software solutions will be available to assist. Your accounting team can help you understand the rules, their impact on your organization and what you will be required to do, as well as assist with required filings and changing requirements.
Contact Jason Jones or a member of your service team to discuss this topic further.
Additional Resources
- FinCEN website for BOI reporting
- FinCEN’s FAQs and Small Business Compliance Guide
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.