By Roland Love, Independence Title Vice President and Attorney
*PLEASE NOTE that the BOI registration of legal entities described below is a separate process from the current FinCEN geographically targeted reporting of residential property purchase transactions by an entity and does not involve an institutional lender. BOI registration must completed by the business entity and is not facilitated by title companies.
The new federal Corporate Transparency Act (CTA) requires business organizations/entities that filed with a Secretary of State to create or register their existence to report to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) specified information about the company and its “beneficial owners.” Beneficial owners are individuals who directly or indirectly exercise substantial control over the company or own or control at least 25% of the ownership interests of the company. This includes senior officers and, typically, directors.
WHY?
The purpose of the CTA is to combat illicit activity such as money laundering, the financing of terrorism, tax fraud, and drug trafficking.
WHO MUST FILE?
Essentially, any entity organized or registered to do business in the United States must file a Beneficial Ownership Information (BOI) Report unless it satisfies one of 23 exemptions. Most of the exemptions apply to already regulated companies or non-profits having a 501(c) approved status. Another significant exemption is for large U.S. operating companies having more than 20 full-time employees in the U.S., an operating presence at a physical office in the U.S., and more than $5 million in gross receipts or sales in the previous year (as shown on a previously filed a tax return with the IRS). Entities formed to own or manage real estate are likely included and not exempted. Information regarding BOI reporting can be found at fincen.gov.boi/beneficial-ownership-information-frequently-asked-questions.
DEADLINES
Basically, the deadline depends on when the entity was or is formed. If formed before January 1, 2024, the report must be filed by January 1, 2025. Entities formed in 2024 must file within 90 days after formation. After December 31, 2024, new entities will have 30 days to report. Even entities that have been formed in 2024 but ceased to exist must file reports. AND, any updates to information already reported must be filed within 30 days after the change.
WHAT WILL BE DONE WITH BOI?
The information will only be available to law enforcement and the U.S. Department of the Treasury for specific purposes. Financial institutions and regulatory agencies that supervise or assess financial institutions may also be permitted to access BOI to comply with customer due diligence requirements under applicable law.
HOW TO FILE
There’s a CTA website! See https://www.fincen.gov.boi.
MAYBE I WILL; MAYBE I WON’T
The willful failure to report, update, or attempt to provide false or fraudulent information may result in:
- A civil penalty of $500/day (to be adjusted for inflation)
- Criminal imprisonment up to two years and/or
- A criminal fine of up to $10,000.
BEST PRACTICE TIPS
- Individuals can obtain a FinCEN Identifier, which will then update every entity report with just an update of the Identifier information.
- Remember, the initial report also requires the identification of a reporting individual – a “company applicant.” Take care in selecting that person as that role also carries a continuing update responsibility for the company.
- Consider including provisions in entity documents that owners and officers agree to provide information for filing a report.
There are pending lawsuits challenging the CTA, but any decisions are limited or a while off. Also, there is a bill stuck in Congress with no prospect for movement. There is a very slight chance for legislation to extend the deadline by a year. Note that most HOA’s and other nonprofits that are not 501(c) compliant are included as reporting entities. Finally, be wary of scammers – FINCEN is not currently reaching out to request information regarding your CTA filing.
