With the approach of the date that the beneficial ownership reporting rules go into effect, and calls for a delay in the requirements, there has been little flexibility shown other than a proposal to extend the number of days for newly formed entities to make their initial report.
Starting on Jan. 1, 2024, most U.S. corporations, limited liability companies and U.S. operations of foreign companies will be required to report information about their beneficial owners to FinCEN, the Financial Crimes Enforcement Network. The requirement has been criticized due to its harsh penalties, which are applicable primarily to smaller business entities rather than huge corporations. Failure to file can result in penalties of $500 per day, up to $10,000; wilful failure to file can result in imprisonment for up to two years.
The primary aim of the requirement to register is that, as the government recognizes, "Illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the U.S. financial system."
To enable the government to catch and penalize these bad actors, the Corporate Transparency Act of 2021 was enacted, according to Barbara Weltman, tax attorney and author of J.K. Lasser's "Small Business 2024."
"The CTA imposes a reporting rule for the owners of many small businesses," she explained. "Starting in 2024, the government will require registration of many entities so it can maintain a national registry of beneficial owners."
There are 23 exemptions. Absent an exemption, a company formed prior to, on or after Jan. 1, 2024, by the filing of a certificate or articles with a secretary of state (or the equivalent authority in a state) or tribal authority must file electronically with FinCEN, providing information concerning the entity as well as personal information concerning its beneficial owners and control persons, according to Barry Bendes, a tax partner at law firm Locke Lord.
"At present, FinCEN is not accepting filings under the CTA until Jan. 1, 2024, when its Beneficial Ownership Secure System (BOSS) becomes available to receive, store,and maintain reporting company and beneficial ownership information," he said.
Reporting company and BOI information will need to be filed electronically in the BOSS system with:
- Newly formed non-exempt entities required to file their information and the BOI for their beneficial owners within 30 days from the date of formation; and,
- Reporting companies (non-exempt entities existing prior to Jan. 1, 2024), having until the end of 2024 to make their filings.
It's worth noting that FinCEN issued a notice of proposed rulemaking on Sept. 26, 2023, that would, if adopted, change the 30 days to 90 days for newly formed entities to initially file if they are formed in 2024.
"And then it reverts back to 30 days after the date of formation," said Bendes. "Basically, it's a limited extension on the duty to file. They understand that small businesses are having trouble wrapping their heads around the various requirements. But it doesn't change any of the other filing deadlines. My guess is that there is close to a 100% probability that the proposal will be adopted."
"Beginning Jan. 1, 2024, individuals who are or may be deemed to be beneficial owners under the CTA and FinCEN regulations will be able to file on the BOSS for a FinCEN identifier," said Bendes. "Obtaining a FinCEN identifier number is not mandatory, but will enable individuals to provide the identifier to the applicable reporting companies in lieu of providing the personal information required by the regulations to the applicable reporting company."
The company will provide the name, taxpayer ID number, address, and any "doing business as" names or fictitious names, and names of beneficial owners and company applicants. The beneficial owner information includes their full name, residence address, date of birth, government-issued ID number like a passport or driver's license, and a copy of the passport or license that has that number.
Once a company is registered with the information, no annual update is required, but an update is required if any of the information on file changes. For example, if a passport expires and a new one is issued, the file must be amended to reflect the change. If one of the owners moves, or the company moves its offices, an update is required.
The exemptions are relatively straightforward and easy to figure out, according to Bendes.
"The tricky part is deciding who is a beneficial owner," he said. "Some accounting firms are asking law firms to help them determine the issue. But others are going ahead and making the decision themselves. I suggest to the accounting firms that I represent that they should get a power of attorney form from the client authorizing them to file on their behalf. And by all means, inform your liability insurance carrier that you are engaging in the practice."
