In an effort to curb money laundering and creation of shell companies, the Corporate Transparency Act (“CTA”) was enacted by Congress in January 1, 2021 and requires that as of January 1, 2024, corporate entities have to report to the government personal information about the beneficial owners of the entity on the Beneficial Ownership Information Report, or “BOIR.” This will affect LLCs, limited partnerships, and smaller corporations, even if the entity was just created for estate planning purposes. Exempt entities will include – but are not limited to – large operating companies, public companies, tax-exempt entities, and security dealers. (The rationale for exemption appears to be that they are already highly regulated.)
The rules require that any person who owns 25%+ or controls an entity has to report personal BOI information to the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”).
The Company will have to report:
- legal name
- tax identification number
- state of formation
- current address for the Company
Each Beneficial Owner will have to report either their FinCEN ID (more information on this below) or will give the Company the following information to be reported about them:
- date of birth
- physical address
- identification number (e.g. driver’s license or passport)
- picture of the ID
Some of this is already part of what is reported to the State of Maine on the Annual Report filing, but the date of birth and proof of ID is a new component.
The BOI reporting requirement seems like an extension of similar information already reported by financial institutions. However, this is new for entities, and it strips away a shield of privacy, which was often the original motivation for forming these small companies.
The biggest challenge we foresee is that data must be kept current with FinCEN. This differs from the financial Know Your Customer rules, which are implemented when a financial account opens and then, depending on the risk level assigned to that customer, have to be updated every 2-10 years. With CTA, if any beneficial owner changes an address, it must be reported within 30 days. If you renew your driver’s license, add a new owner, hire a new manager, or move to a new apartment, you must update that information. The penalty is $500 per day up to a maximum of $10,000 and/or imprisonment up to 2 years. It is not clear if the penalty be assessed proactively.
Entities that form after January 1, 2024 must report BOI data to FinCEN within 90 days (originally 30 days) and must also report on who was the Company Applicant; existing businesses have until December 31, 2024 calendar year to bring their records current and do not need to report a Company Applicant. Entities that form after January 1, 2025 must report BOI data to FinCEN within 30 days.
We are providing a brief overview of the requirements below, but more thorough data can be found at https://www.fincen.gov/boi. Please note that since this is a new requirement, processes or requirements may change over time and we may not be able to keep you updated; you are obliged to keep yourself informed.
Reporting is required for the business entity (“Company”) itself as well as for parties with at least a twenty-five percent (25%) ownership interest and those exercising control over the Company. Individuals “exercising control” would include each Member and Manager of a Limited Liability Company (LLC); each Shareholder, Officer, and Director of a Corporation; and each Partner and General Partner of a Partnership (Limited Partnership, Limited Liability Partnership, Family Limited Partnership, etc.).
Please note that this is required for business entities under federal law. Failure to report can result in civil and criminal penalties including fines and up to two years in prison. This is not a filing that Jones, Kuriloff & Sargent, LLC will do on your behalf.
Currently, data reported to FinCEN does not need to be renewed on a regular basis (i.e. there is no annual filing requirement); instead, if there is any change to the original information submitted, the change must be submitted on the BOI E-Filing System within thirty (30) days.
We recommend that if the Company has more than one beneficial owner (or more than a married couple as beneficial owners), it establish a FinCEN ID for the Company and that additionally, each beneficial owner submit his/her personal information to get a FinCEN ID through https://fincenid.fincen.gov/landing. The beneficial owners would then provide their FinCEN IDs to the Company; the Company would e-file on BOSS and report the beneficial owners’ FinCEN IDs instead of reporting all of their personal data. No one is required to create a FinCEN ID, but we believe it will streamline the reporting process and reduce incidences of personal data being breached.
Beneficial owners must keep their data current, and the Company must keep its information current as well. Please note that an individual only needs one (1) FinCEN ID, even if he/she is a beneficial owner in multiple entities.
If another entity is a beneficial owner, you are required to keep looking through until individuals can be identified. For example, if a trust is an owner, the trustee and usually the beneficiaries will be required to file with FinCEN if they have an aggregate interest of at least 25% and have discretion over distributions. Review of the FinCEN website will probably be required to help you determine who must be report.
You are strongly encouraged to review the Frequently Asked Questions website (https://www.fincen.gov/boi-faqs) regarding filing for your Company.
The information presented on this website is general in nature and not intended to be legal advice. No attorney-client relationship will exist with Jones, Kuriloff & Sargent, LLC unless we agree in writing after a personal consultation. Please contact us for a consultation on your particular situation.