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Get set for new Corporate Transparency Act reporting requirements

Dec 12, 2023
By: Sue Tuson

As part of the Anti-Money Laundering Act of 2020, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) was authorized to collect beneficial ownership information (BOI) and establish reporting requirements for certain corporations, limited liability companies and similar entities created in or registered to do business in the U.S.

Reporting requirements go into effect on January 1, 2024.

Who must report

Domestic entities formed under the laws of the U.S. and Indian tribes, unless an exemption applies, must report.

Foreign entities that have registered to do business in any U.S. state or tribal jurisdiction by filing a document with a secretary of state or similar office of the state or tribe must report.

The rules provide for 23 specific entity exemptions:

  • Securities reporting issuers
  • Governmental authorities
  • Banks
  • Credit unions
  • Depository institution holding companies
  • Money services businesses
  • Brokers or dealers in securities
  • Securities exchanges or clearing agencies
  • Other Exchange Act registered entities
  • Investment companies and investment advisors
  • Venture capital fund advisors
  • Insurance companies
  • State-licensed insurance producers
  • Commodity Exchange Act registered entities
  • Accounting firms
  • Public utilities
  • Financial market utilities
  • Pooled investment vehicles
  • Tax-exempt entities
  • Subsidiaries of certain exempt entities
  • Large operating companies meeting six criteria who:
    • Employ more than 20 full-time employees.
    • Filed tax returns for the prior year demonstrating more than $5 million in gross receipts or sales (excluding sales outside the U.S.).
    • Have an operating presence at a physical office within the U.S.
  • Entity-assisting tax-exempt entities
  • Inactive entities

What must be reported

  • Beneficial owner information: Individual’s full legal name, date of birth, current residential or business street address and unique identifying number from an acceptable identification document (e.g., passport) or the individual’s FinCEN identifier
  • Company applicant

Beneficial owner

  • Includes any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company or (2) owns or controls at least 25% of the ownership interests of a reporting company.
  • In defining who has substantial control, the rule sets forth a range of activities that could constitute substantial control of a reporting company. This list captures anyone who is able to make important decisions on behalf of the entity. A person can have “substantial control” without having ownership and there is no limit on the number of persons who may be reported as having “substantial control.”
  • The rules provide standards and mechanisms for determining whether an individual owns or controls 25% of the ownership interests of a reporting company.

Company applicant

  • The individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the U.S.
  • The individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
  • Entities that are existing or registered at the time of the effective date of the rule are not required to identify and report on their company applicants.

Due dates

Newly created or registered entities: Reporting companies created or registered on or after January 1, 2024, and before January 1, 2025, have 90 calendar days to file their initial reports.

Existing entities: Companies in existence as of January 1, 2024, must submit an initial report by January 1, 2025.

Change in information previously reported

Updated reporting is required within 30 days when there is a change in the information previously provided, the entity becomes exempt or inaccuracies in previous reporting are discovered.

How to file

The reports must be electronically filed with FinCEN.

Penalties

The willful failure to report complete or updated beneficial ownership information to FinCEN or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in civil or criminal penalties including civil penalties of up to $500 for each day that the violation continues or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required report may be held accountable for that failure. 

How Wipfli can help

Accurate compliance with these new rules may require a review of legal documents and, in many cases, consideration of myriad property law factors to assess the actual ownership of the entity. BOI reporting services are likely to be considered the practice of law in most states. It is recommended that entities work with their legal advisors to file these reports or document reasons for exemptions. If you need introductions to legal advisors, please contact your Wipfli team.

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Author(s)

Sue Tuson, CPA, MST
Partner
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