Beneficial ownership information reporting under the Corporate Transparency Act

The Corporate Transparency Act (CTA) was enacted as part of the National Defense Act for Fiscal Year 2021. The CTA mandates that millions of entities report their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This resource is meant to provide a preliminary overview of the provisions in the CTA.

Who is required to report under the CTA's BOI reporting requirement?

All domestic and foreign entities that have filed formation or registration documents with a U.S state (or Indian tribe), unless they meet one of 23 enumerated exceptions (see FinCEN FAQs for a full list of exemptions), including the following exemption:
- YOU ARE EXEMPT IF YOU ARE A Large operating entity that meet all the following criteria:
  - Employ more than 20 full-time employees in the U.S., and
  - Had gross revenue (or sales) over $5 million on the prior year's tax return, and
  - Has a physical office in the U.S.

When must companies file?

New entities (created/registered in 2024) — must file within 90 days
New entities (created/registered after Dec. 31, 2024) — must file within 30 days
Existing entities (created/registered before Jan. 1, 2024) — must file by Jan. 1, 2025
Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days. This includes changes in ownership during the year.

What information do companies need to report?

Each company must report the information below through the FinCEN BOIR E-Filing System.
- Full legal name of the reporting company and any trade or DBA names
- Business address
- IRS EIN
  • Name
  • Birthdate
  • Address
  • Unique identifying number and issuing
  jurisdiction from an acceptable identification
  document (and image of such document)
In addition, each reporting company must
report the following details on its beneficial
owners and, for newly created entities, its
company applicant(s):
- Name
- Birthdate
- Address
- Unique identifying number and issuing jurisdiction from an acceptable identification document (and image of such document - e.g. driver's license or passport)

What are the penalties for noncompliance with the statue?

Civil penalties are up to $591 per day that a violation continues.
Criminal penalties include a $10,000 fine and/or up to two years of imprisonment.

Specifically, what is the Act and what is its purpose?

The CTA is a statute that was enacted in 2021 that requires the disclosure of the beneficial ownership information of certain entities from people who own or control a company. The intent of the BOI reporting requirement is to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity.
The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act — a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with FinCEN, another agency of the Department of Treasury.

Who should I contact to determine if a party is a beneficial owner within the definition of the Act if I am unsure?

As the Act falls outside the purview of the Internal Revenue Code (Title 26), but within the Money and Finance Code (Title 31), we can assist with the compliance task of reporting the Beneficial Ownership Information; however, we cannot make a determination as to which members of your team constitute a Beneficial Owner for purposes of the Act, as this may be construed as an unauthorized practice of law. If you are unsure, we strongly advise you to contact legal counsel to confirm your beneficial owners and reporting requirements prior to engaging us to file your BOI report.

I understand that you can't make specific determinations, but who is a beneficial owner, generally?

Any individual who, directly or indirectly, either:

Exercises “substantial control” over a reporting company, or
Owns or controls at least 25 percent of the ownership interests of a reporting company

An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.

“Ownership interests” generally refer to arrangements that establish ownership rights in the reporting company, including simple shares of stock as well as more complex instruments.

The detailed CTA regulations define the terms "substantial control" and "ownership interest" further.

Am I required to use a CPA or Attorney to file my BOI?

No. According to the FAQ, "anyone whom the reporting company authorizes to act on its behalf—such as an employee, owner, or third-party service provider—may file a BOI report on the reporting company’s behalf. When submitting the BOI report, individual filers should be prepared to provide basic contact information about themselves, including their name and email address or phone number." You can file online at no cost by visiting https://boiefiling.fincen.gov/fileboir.

You mentioned that a 'Large Operating Entity' may be exempt - can I aggregate all of the employees across all businesses I own to meet the definition?

No. Specifically, the large corporate exemption requires that the entity itself employ more than 20 full-time employees in the US and does not permit consolidation of this employee count across all entities.

I've met with my Legal Counsel and determined that I do meet the 'Large Operating Entity' exemption in my operating Company - but what about the Rental LLC my spouse and I own that leases rental property to the 'Large Operating Entity' - is it exempt as well?

No. Each entity must meet the exemption requirements itself. In this scenario, unless the Rental LLC mentioned above (a) reported more than $5MM in revenue on its prior year return, (b) employed more than 20 full time employees, and (c) is physically located in the US, it does not meet the criteria for the 'Large Operating Entity' exemption and is subject to the BOI reporting requirements.

What about the LLC/Inc. I own that hasn't been active in several years - is it required to file a BOI report?

It depends. The FAQ provided information related to an inactive entity exemption, provided the entity at issue meets all six the following six criteria:

The entity was in existence on or before January 1, 2020.
The entity is not engaged in active business.
The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially. “Foreign person” means a person who is not a United States person. A United States person is defined in section 7701(a)(30) of the Internal Revenue Code of 1986 as a citizen or resident of the United States, domestic partnership and corporation, and other estates and trusts.
The entity has not experienced any change in ownership in the preceding twelve-month period.
The entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period.
The entity does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.

For more information, see FinCEN’s Small Entity Compliance Guide , which includes checklists for this exemption (see exemption #23) and for the additional exemptions to the reporting requirements (see Chapter 1.2, “Is my company exempt from the reporting requirements?”)

One last question - my sister owns a small photography studio on the side that operates as a sole proprietorship - it is not organized as an Inc. or LLC and she does business as herself. Is she required to file a BOI report?

Generally, no. Per the FAQ, "unless a sole proprietorship was created (or, if a foreign sole proprietorship, registered to do business) in the United States by filing a document with a secretary of state or similar office. An entity is a reporting company only if it was created (or, if a foreign company, registered to do business) in the United States by filing such a document. Filing a document with a government agency to obtain (1) an IRS employer identification number, (2) a fictitious business name, or (3) a professional or occupational license does not create a new entity, and therefore does not make a sole proprietorship filing such a document a reporting company."

Thanks for providing the info - after reviewing all of the information you've provided, I know who my beneficial owners are and would like you to take care of this filing, but I have not yet received a call from you - how do I let you know that I would like the firm to file this report?

We are in the process of reaching out to all of our clients to complete their BOI reports or verify that they have self-filed their BOI reports. If you have not yet received our phone call, please call Cynthia at our front desk to request that she gets you added to our filing list. Once you are added to our list, we will reach out to obtain any additional information needed to file your BOI report.

Thanks for providing the info - after reviewing all of the information you've provided, I will take care of filing this myself (or have one of my employees complete the filing), but the process for us to file has already been initiated. How do I let you know that I will self-file?

If after reviewing this information, you would prefer to self-file, and we have started the information gathering process please do not sign the engagement letter provided to you and indicate that you are self-filing via an e-mail to Clinton - clinton@rlfortincpa.com or by way of a comment through the Chat window in your project portal. Upon self-filing, please provide us a copy of your successfully submitted BOI report, as we retain this information in our permanent file.

Where can I find more information on BOI?

For more information, refer to the following FinCEN resources:

Note: This article does not constitute legal or financial guidance by Clinton Winkles, LLC or by its managing member or employees. It is not intended to encourage or recommend specific actions by the reader. Consult your legal advisor before commencing with any legal reporting activities.