The Corporate Transparency Act mandates disclosures about the beneficial owners of certain entities doing business in the United States, and the CTA was recently amended to require all entities file a Beneficial Ownership Information report (BOI report) unless they are exempt. Most businesses with revenue under $5 million or under 20 employees are required to report. The purpose is to assist the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) in identifying entities involved in money laundering, terrorism, tax evasion, organized crime and other illegal activities.
Under the CTA, in certain situations, a BOI Report must be filed with FinCEN, providing information about the entity’s owners.
Who is a beneficial owner?
A “beneficial owner” is defined as an individual who exercises substantial control over the entity, meaning they do any of the following:
- Serve as a senior officer.
- Have the authority to appoint or remove any senior officer, a majority of the board of directors or a similar body.
- Direct, determine or have substantial influence over important decisions. • Own or control 25% or more of the entity’s ownership interests.
- Have any other form of substantial control.
What entities must file BOI reports?
As of Jan. 1, all non-exempt entities must file a BOI report. Exemptions from filing include:
- Large operating entities that have more than $5 million in annual revenue and more than 20 full-time employees.
- Publicly traded entities.
- Inactive entities formed before Jan. 1, 2020.
- Tax-exempt entities.
- Governmental authorities.
- Subsidiaries of exempt entities.
The entire list of exemptions can be found at https://www.fincen.gov/boi-faqs. If an entity was formed before Jan. 1, 2024, and is not exempt, it must file a BOI report by Jan. 1, 2025. Non-exempt entities formed after Jan. 1, 2024, must file a BOI report within 90 days after formation.
What data must be included?
Generally, the BOI report requests the name, address, date of birth and some form of identifier. For an entity, this would typically be a taxpayer identification number, and for individuals, a driver’s license or passport number and an image of the photo identification document.
Are these requirements legal?
We will see. Several lawsuits have challenged the legality of these requirements. On March 1, the U.S. District Court for the Northern District of Alabama declared the CTA unconstitutional and suspended its enforcement against the plaintiffs. While most companies remain subject to its requirements, this court decision may indicate whether the new CTA reporting obligations will ultimately be enforceable. While the new requirements may be overturned, this will likely not occur in 2024. Therefore, all non-exempt entities should be prepared to file a BOI report by Jan. 1, 2025.
Blake R. Nelson is a constructionlaw attorney with Hellmuth & Johnson PLLC in Minneapolis. He can be reached at [email protected].
