The CTA's New Rule: What You Need to Know About BOI Reporting

ARTICLE | January 19, 2024

As of January 1, 2024, a new rule has come into effect under the Corporate Transparency Act (CTA) that requires a vast number of domestic and foreign companies to submit Beneficial Ownership Information (BOI) reports. This new regulation is aimed at aiding U.S. law enforcement in battling illicit activities such as money laundering and the financing of terrorism. 

Who Needs to Report?

The BOI reports are distinct from tax return filings and are not filed with the IRS. Instead, they are reported to the Financial Crimes Enforcement Network (FinCEN), an agency under the U.S. Department of Treasury. Entities required to file a BOI report include any domestic entity that was formed by filing registration documents with any U.S. state’s Secretary of State or a similar office, and any foreign entity registered to do business in any U.S. state. 

Notably, many single-member LLCs, which are considered disregarded entities for tax purposes, fall under the scope of the BOI reporting requirements. However, many smaller businesses organized as sole proprietorships or general partnerships may be exempt, as they often do not require file registration documents with a U.S. state’s Secretary of State’s office.

Exemptions from Reporting

The BOI rules outline a list of 23 types of entities exempt from the reporting requirement. Among others, these exceptions include certain financial services firms, publicly-held companies, charities, political organizations, and "large operating companies". A large operating company is an entity that satisfies all of the following criteria: it employs more than 20 full-time employees in the U.S., reported over $5 million in sales on the previous year’s tax return, and operates a physical office in the U.S.

Defining a Beneficial Owner

A beneficial owner is an individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25% of the ownership interests of a reporting company. Some individual beneficial owners, such as minor children, are exempt from reporting.

Reporting Requirements and Deadlines

For each reporting company, the full legal name, any trade name or DBA, the jurisdiction of formation or registration, and the taxpayer identification number must be reported. For each beneficial owner and company applicant, the individual’s name, date of birth, residential address, a unique ID number, and image of an ID document, such as an unexpired passport or driver’s license, must be reported. 

Reporting companies that existed as of January 1, 2024, have until January 1, 2025, to file their initial BOI reports. Those created during the 2024 calendar year must file their initial BOI reports within 90 days of the company’s formation. Companies created after January 1, 2025, will have 30 days following the company’s formation to file their initial BOI reports.

It's important to note that while there is no ongoing reporting requirement after an initial BOI report has been filed with FinCEN, companies have a 30-day window to report changes to the information in the previously submitted BOI reports and to correct inaccurate information after becoming aware of the errors or inaccuracies.

Consequences of Non-Compliance

Failure to comply with these new regulations can have severe repercussions. Willful violation of BOI reporting requirements could result in civil penalties of up to $500 per day, as well as criminal penalties of up to two years in prison and a fine of up to $10,000.

In order to prepare for compliance with these rules, companies should review and revise their internal policies to ensure that they maintain up-to-date beneficial ownership information. Putting procedures in place to report changes to FinCEN promptly will help avoid penalties. As the information to be reported arises from determinations that are primarily legal in nature, it is advisable to work with legal counsel to proactively assess filing obligations under the new BOI reporting rules.