New Mandatory FinCEN Ownership Reporting Requirements

Starting January 1, 2024, the 2021 Corporate Transparency Act introduces mandatory reporting of beneficial ownership information to be phased in over two years. ‘Reporting Companies’ must report details about their ‘beneficial owners’ to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) as well as provide timely updates when information changes.

Who is a Reporting Company?

Any of the following entities are considered reporting companies and will be required to comply with the new reporting requirements unless they meet one of the exemptions.

• A domestic corporation.
• An LLC, including a single member LLC.
• Any entity registered with a Secretary of State’s office or similar office under the law of a State or Indian Tribe. E.g. Limited partnerships, limited liability partnerships, and business trusts.
• A foreign corporation or LLC, or other entity formed under the law of a foreign country and registered to do business in the United States through the filing of a document with a Secretary of State or similar office under the law of a State or Indian Tribe.

Exemptions

The new reporting requirements do not apply to the following entities:

Large Operating Companies – Exemption #21

An entity qualifies for this exemption if all of the following criteria are met:

1. The entity has more than 20 full-time employees (i.e. an employee who works an average of at least 30 hours per week).
2. The entity filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales.
3. The entity has an operating presence at a physical office within the United States.

Inactive Entity #23

An entity qualifies for this exemption if all of the following criteria are met:

1. The entity was in existence on or before January 1, 2020.
2. The entity is not engaged in active business.
3. The entity is not owned either directly or indirectly by a foreign person.
4. The entity has not experienced any change in ownership in the preceding 12-month period.
5. The entity has not sent or received any funds in an amount greater than $1,000 in the preceding 12-month period.
6. The entity does not otherwise hold any assets, whether in the US or abroad, including any ownership interest in any corporation, LLC or other similar entity.

Two Year Phase-in of New Reporting Requirements

Starting January 1, 2024 newly formed entities who do not meet an exemption will be required to comply with the new FinCEN reporting requirements.

For entities already in existence prior to January 1, 2024, the new filing requirements begin on January 1, 2025.

When to file a Beneficial Ownership Information (BOI) report with FinCEN?

If the entity was formed before January 1, 2024, it must file its initial beneficial ownership information report by January 1, 2025.

If the entity was created or registered to do business in the U.S. on or after January 1, 2024, then it must file its initial beneficial ownership information report within 90 days after registering with a Secretary of State is effective.

For companies created or registered on or after January 1, 2025, they will have 30 days to file their initial beneficial ownership information report from the date of creation.

If there is any change to the required information either for the reporting company, or its beneficial owners, the company must file an updated report no later than 30 days after the date of the change.

If a reporting entity discovers an error on a previously filed BOI, the company must correct it no later than 30 days after the date the company became aware of the inaccuracy.

If a reporting company qualifies under one of the exemptions and becomes an exempt company after filing a BOI, the company should file an updated report indicating that it is no longer a reporting company.

What is to be Reported?

A reporting company will need to file an initial report and must file an updated report each time information from the initial report has changed. The reporting company must indicate when filing if it is an initial filing, a correction, or an update of a prior report. Information to be provided on the report includes the following:

• Reporting company information
  • Full legal name as well as DBA or trading names
  • U.S. Address
  • The state, tribal, or foreign jurisdiction where the company was formed
  • For a foreign entity, the state, tribal or foreign jurisdiction where the entity was first registered in the U.S.
  • The entity’s taxpayer identification number (TIN) (or if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).

• Beneficial owner information
  • Individual’s full legal name
  • Date of birth
  • Address
  • Unique identifying number from one of the following nonexpired documents:
    • U.S. passport
    • State, local, or governmental identification card
    • State driver’s license, or
    • Foreign passport (if U.S. ID not available)
  • An image of one of the above listed documents

• Company applicant information (Only for reporting companies registered on or after January 1, 2024).

Note a reporting company registered after January 1, 2024 who is required to disclose information to report their company applicant will only have to provide information for up to two individuals who would qualify as company applicants.

• Full legal name
  • Company address
  • Unique identifying number from one of the following listed nonexpired documents OR the company applicant’s FinCEN number

An image of one of the above listed documents if not providing a FinCEN number.

Beneficial Owner

A beneficial owner is an individual who directly or indirectly either:

• Exercises ‘substantial control’ over the entity, or
• Owns or controls 25% or more of the reporting company’s ownership interest. This includes:
  • Equity, stock or voting rights
  • Capital or profit interest
  • Convertible instruments
  • Option or privilege

Note the following are not including in the definition of beneficial owner:

• Minor child.
• Individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual.
• Individual acting solely as an employee of the entity.
• Individual whose only interest in an entity is through a right of inheritance.
• Creditor.

Reminder that in community property states, spouse’s interests will be combined for purposes of determining whether they reach the 25% reporting threshold.

Beneficial owners for trusts include:

• Trustee or other individual with the authority to dispose of trust interests.
• A beneficiary who is the sole recipient of trust income and principal or has the right to demand withdrawal of substantially all the trust assets.
• A grantor or settlor who has the right to revoke or otherwise withdraw assets.

Substantial Control

An individual has substantial control if:

• They are a senior officer (e.g. president, CFP, CEO, COO, or any other person who performs a similar function).
• They have authority to appoint or remove a senior officer or a majority of directors (or similar body).
• They are an important decision-maker. I.e. they have the authority to direct, determine or have substantial influence over the business, finances or structure of the entity.
• They have any other form of substantial control over the entity.

Company Applicant

A company applicant is someone who:

• Directly files the document that creates or registers the company, or
• An individual who is primarily responsible for directing or controlling the filing.

Consolidated Filing

Each reporting company must file its own Beneficial Ownership Information report. A parent company cannot file a consolidated report on behalf of a subsidiary entity.

Impact of Not Filing

These additional reporting requirements are informational only and do not generate any tax liability.

Failure to comply with the new requirements can result in penalties which can be imposed against the entity itself as well as any person who either causes the failure or is a senior officer of the entity at the time of the failure:

• Civil penalty starting at $500 per day with no maximum cap.
• Criminal penalty of up to $10,000 and/or imprisonment of up to two years.

Penalties will not be imposed if a report correcting inaccurate information is filed within 90 days of the deadline for the original report.

Recommendations

Quarterly emails to Beneficial Owners

To ensure reporting companies remain compliant with the new reporting requirements, we recommend reporting companies send quarterly emails to all beneficial owners, requesting they verify the information on file is still correct. This way if information changes, the reporting company is able to file an updated or corrected Beneficial Ownership Information report without incurring penalties. For an example template to use click here.

Changes to look out for that would require filing an updated BOI:

• Change of address for the reporting company.
• New registered trading as or DBA name for the reporting company.
• Change of who is a beneficial owner due to:
  • New CEO or other executive who meets the substantial control criteria.
  • Change of ownership %, meaning change to who is a 25% or more owner.
• Change of beneficial owner’s information:
  • Change of name due to marriage/divorce.
  • Change of beneficial owner’s address.
• Change of ID due to renewal of passport or driver’s license.

Beneficial Owners apply for a FinCEN Identifier

These new reporting requirements could mean that individuals need to provide their personal information to multiple reporting companies, as well as provide each reporting company with updates every time their information changes. As an easier alternative, an individual can avoid having to provide this information multiple times and having to provide multiple updates, by applying for a FinCEN identifier. An individual can apply for this unique identifying number directly with FinCEN. Any changes to their information will also need to be provided directly to FinCEN. The individual can then provide their FinCEN identifying number to any reporting companies in lieu of providing all their personal information and needing to inform the reporting company of any changes to their information.

Individuals will be able to request a FinCEN identifier on or after January 1, 2024 by completing an application form online through FinCEN.

Changes to Classification as a Reporting Company

An entity may be a non-reporting company one year and a reporting company the next. Note the examples below:

1. A company may file a Beneficial Ownership Information report as a reporting company, and then due to growth, it may meet the exemption as a ‘large operating company’, and therefore no longer be subject to the reporting requirements. The entity should file an updated report indicating that it is no longer a reporting company
2. A company may file a Beneficial Ownership Information report as a reporting company, and then business is wound down and the entity becomes inactive and therefore no longer subject to the reporting requirements. The entity should file an updated report indicating that it is no longer a reporting company.
3. Tax-Exempt entities don’t obtain tax-exempt status until they receive their tax-exempt acceptance letter from the IRS. From the time the entity registers with the Secretary of State to the time they receive their tax-exempt acceptance letter from the IRS, the entity may need to file a Beneficial Ownership Information report. After tax-exempt status is confirmed, the entity should file an updated report indicating that it is no longer a reporting company.

Additional Information

The FinCEN Beneficial Ownership Information Form is not yet available, but when it is we will link it here. will continue to issue frequently asked questions to address specific questions on this topic. They can be found here. Additional information about the new reporting requirements and other guidance materials are available here.