Beginning Jan. 1, 2024, tens of millions of small businesses must comply with the Corporate Transparency Act by
The new legal and reporting requirements are part of U.S. anti-money laundering regulations included within the National Defense Authorization Act. The CTA requires companies that aren't specifically exempt from the BOI reporting requirement to file with the Treasury Department's Financial Crimes Enforcement Network specific BOI information from corporations, limited liability companies and other business entities formed or registered to do business in the United States.
The purpose of this provision of the CTA is to help prevent illegal financing activities and battle against the use of shell companies and other activities for criminal purposes, such as bribery, money laundering, terrorism financing, tax fraud and other illegal activities.
As we quickly approach the launch of the reporting requirement, FinCEN is ramping up issuance of guidance to answer many questions that reporting companies, accounting and law firms, financial institutions, and other stakeholders continue to have.
One sticking point for many remains: We still haven't seen the actual form that must be filed. On Dec. 12, the agency did put out a number of additional
How will companies become aware of the BOI requirements?
FinCEN said it is expanding its outreach and education campaign to raise awareness of and help reporting companies understand the new reporting requirements.
That campaign involves virtual and in-person outreach events and comprehensive guidance in a variety of formats and languages, including multimedia content and the
In addition, the agency hosted a webinar on Dec. 12 that quickly closed registration as thousands of businesses rushed to sign up. The agency is also engaging with governmental offices at the federal and state levels, business trade associations and interest groups.
FinCEN indicates it will continue to provide guidance, information and updates related to the BOI reporting requirements on its
Who can file a BOI report?
Anyone whom the reporting company authorizes to act on its behalf — such as an employee, owner or third-party service provider — may file a BOI report on the reporting company's behalf. Individual filers must provide basic contact information about themselves, including their name and email address or phone number.
Does the activity or revenue of a company determine whether it is a reporting company?
The agency says "sometimes." It goes on to state that a reporting company is any corporation, limited liability company or other similar entity that was created in the United States by the filing of a document with a secretary of state or similar office (in which case it is a domestic reporting company), or any legal entity that has been registered to do business in the United States by the filing of a document with a secretary of state or similar office (in which case it is a foreign reporting company), that does not qualify for any of the specific exemptions included in the CTA.
An entity's activities and revenue, along with other factors in some cases, can qualify it for one of those exemptions. FinCEN provides an example: "There is an exemption for certain inactive entities, and another for any company that reported more than $5 million in gross receipts or sales in the previous year and satisfies other exemption criteria. Neither engaging solely in passive activities like holding rental properties, for example, nor being unprofitable necessarily exempts an entity from the BOI reporting requirements."
Is a sole proprietorship a reporting company?
FinCEN responds no, but with a proviso. A sole proprietorship is considered a reporting company if it "was created (or, if a foreign sole proprietorship, registered to do business) in the United States by filing a document with a secretary of state or similar office. An entity is a reporting company only if it was created (or, if a foreign company, registered to do business) in the United States by filing such a document. Filing a document with a government agency to obtain an IRS employer identification number, a fictitious business name, or a professional or occupational license does not create a new entity, and therefore does not make a sole proprietorship filing such a document a reporting company."
Does a reporting company have to report information about its parent or subsidiary companies?
The answer given is no, though if a special reporting rule applies, the reporting company may report a parent company's name instead of BOI.
"A reporting company usually must report information about itself, its beneficial owners, and, for reporting companies created or registered on or after Jan. 1, 2024, its company applicants. However, under a special reporting rule, a reporting company may report a parent company's name in lieu of information about its beneficial owners if its beneficial owners only hold their ownership interest in the reporting company through the parent company and the parent company is an exempt entity."
Additional information can be found on the agency's website in Chapter 4 of FinCEN's
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.
Have I met FinCEN's BOI reporting obligation if I filed a form or report that provides beneficial ownership information to a state office, a financial institution, or the IRS?
The agency answers no to this common question. It explains that reporting companies must report beneficial ownership information directly to FinCEN as required under the CTA: "State or local governments, financial institutions and other federal agencies, such as the IRS, may separately require entities to report certain beneficial ownership information." However, this is not a substitute for reporting BOI directly to FinCEN.
How does a company created or registered after Jan. 1, 2024, determine its date of creation or registration?
The agency makes clear that 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."
FinCEN says it does recognize that there are different state filing practices. However, it feels that "individuals who create or register reporting companies will likely stay apprised of creation or registration notices or publications, given those individuals' interest in establishing an operating business or engaging in the activity for which the reporting company is created."
Is an updated BOI report required when the type of ownership interest a beneficial owner has changes?
The answer to this question was unclear. The agency responds no: "A change to the type of ownership interest a beneficial owner has in a reporting company — for example, a conversion of preferred shares to common stock — does not require the reporting company to file an updated BOI report because FinCEN does not require companies to report the type of interest." However, FinCEN makes clear that updated BOI reports are required when information is reported to the agency about either the reporting company or its beneficial owners' changes.
If a company needs to update one piece of information, such as its legal name, does it have to fill out an entire new report?
Even if just one piece of reported information changes, the agency makes clear that updated BOI reports require all fields to be submitted. An example is where a reporting company changes its legal name, the company must file an updated BOI report to include the new legal name and the previously reported, unchanged information about the company, its beneficial owners, and, if required, its company applicants.
The agency goes on to state that "a reporting company that filed its prior BOI report using the fillable PDF version may update its saved copy and resubmit to FinCEN. If a reporting company used FinCEN's web-based application to submit the previous BOI report, it will need to submit a new report in its entirety by either accessing FinCEN's web-based application to complete and file the BOI report, or by using the PDF option to complete the BOI report and upload to the BOI e-filing application."
Can a filer submit a late updated BOI report?
Yes, the filer can file an updated report at any time. But the agency makes clear that it is the reporting company that is responsible for ensuring that updates are filed within 30 days of a change occurring even if it has engaged a third-party service provider to file BOI reports and updates for it. It is the reporting company's responsibility to communicate any changes to its BOI to the third-party service provider with enough time to meet the 30-day deadline.
If a reporting company last filed a "newly exempt entity" BOI report but subsequently loses its exempt status, what should it do?
The agency makes clear that the reporting company must file an updated BOI report with FinCEN and include the company's current beneficial ownership information when it determines it no longer qualifies for an exemption.
What penalties do individuals face for violating BOI reporting requirements?
A willful violation of the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. The agency makes clear that a person may also be subject to criminal penalties of up to two years of imprisonment and a fine of up to $10,000. The agency specifies that "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."
Who can be held liable for violating BOI reporting requirements?
This question has been on the minds of many, and FinCEN's response is quite clear: Both individuals and corporate entities can be held liable for willful violations. It goes on to say, "This can include not only an individual who actually files (or attempts to file) false information with FinCEN, but also anyone who willfully provides the filer with false information to report. Both individuals and corporate entities may also be liable for willfully failing to report complete or updated beneficial ownership information; in such circumstances, individuals can be held liable if they either cause the failure or are a senior officer at the company at the time of the failure."
The agency further addresses the following related questions:
Can an individual who files a report on behalf of a reporting company be held liable?
Yes. An individual who willfully files a false or fraudulent beneficial ownership information report on a company's behalf may be subject to the same civil and criminal penalties as the reporting company and its senior officers.
Can a beneficial owner or company applicant be held liable for refusing to provide required information to a reporting company?
Yes. The agency reiterates that "an enforcement action can be brought against an individual who willfully causes a reporting company's failure to submit complete or updated beneficial ownership information to FinCEN. This would include a beneficial owner or company applicant who willfully fails to provide required information to a reporting company."
Is a reporting company responsible for the accuracy of the information that it reports to FinCEN, even if it obtains that information from another party?
Yes, it is the responsibility of the reporting company to identify its beneficial owners and company applicants, and to report those individuals to FinCEN. The bottom line here is that it is the reporting company that is ultimately responsible for the accuracy of all reported information, even if the information they receive from their beneficial owners and company applicants is incorrect.
What should a company do if a beneficial owner or company applicant withholds information?
The agency doubles down here in stating that it is the reporting companies' responsibility to submit complete and accurate beneficial ownership information to FinCEN, even if beneficial owners or company applicants don't provide accurate information. Further, it states, "Starting Jan. 1, 2024, reporting companies will have a legal requirement to report beneficial ownership information to FinCEN."
However, beneficial owners don't get a free ride here. The agency says, "Beneficial owners and company applicants should also be aware that they may face penalties if they willfully cause a reporting company to fail to report complete or updated beneficial ownership information. Persons considering creating or registering legal entities that will be reporting companies should take steps to ensure that they have access to the beneficial ownership information required to be reported to FinCEN, and that they have mechanisms in place to ensure that the reporting company is kept apprised of changes in that information."
While not specifically addressed in the FAQ, if there is a third-party service provider engaged by the reporting company, that provider (for example, an accounting firm) should ensure it has processes in place to be certain to ensure that any changes to reported information is tracked.
Who can request a FinCEN identifier on behalf of an individual?
The agency states that anyone authorized to act on behalf of an individual may request a FinCEN identifier on the individual's behalf on or after Jan. 1, 2024.
The agency goes on to indicate that "obtaining a FinCEN identifier for an individual requires the requesting party to create a Login.gov account, which is tied to the individual receiving the FinCEN identifier. Individuals who receive a FinCEN identifier should ensure their login credentials, including email address and related multifactor information associated with their Login.gov account, are saved for future reference." More information regarding FinCEN identifiers can be found in the
What type of evidence will a company receive as confirmation that its BOI report has been successfully filed?
The agency says that the BOI e-filing application, which won't be available until Jan. 1, 2024, will provide acknowledgement of submission success or failure, and the submitter will be able to download a transcript of the BOI report. Where the reporting company engages a third-party provider, the confirmation can be obtained from the provider.
Will a third-party service provider be able to submit multiple BOI reports at the same time?
Yes, according to FinCEN. Third-party service providers will be able to submit multiple BOI reports through an application programming interface. Note that the API referred to is not yet available.
Fraud alert
FinCEN has posted an alert on its website stating that the agency has been notified of fraudulent attempts to solicit information from individuals and entities who may be subject to BOI requirements. The fraudulent correspondence may be titled "Important Compliance Notice," asking the recipient to click on a URL or to scan a QR code. Those emails or letters are fraudulent.
FinCEN states it doesn't send unsolicited requests. The agency asks companies not to respond to these fraudulent messages or click on any links or scan any QR codes within them. FinCEN has indicated it will not begin collecting BOl reports until January 2024.
