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.
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.