Learning about latest developments of the Corporate Transparency Act and BOI reporting is crucial for businesses and individuals who may be affected by its requirements. Staying updated on its implementation and current legal challenges can help us in making decisions on how to make swift responses to stay compliant with the new law.
1.1 What is BOI reporting and why was it started?
BOI reporting requirements were started from the CTA, part of the Anti-Money Laundering Act of 2020. A bureau within the U.S. Treasury Department, namely FinCEN, issued a final rule establishing the beneficial ownership information reporting requirements. The requirements took effect on Jan 1, 2024.
The new law was designed to significantly increase transparency in business ownership by preventing anonymous shell companies. It is an effort to help prevent money laundering and other financial crimes. Those that have controls over entities are required to provide identifying information.
1.2 Beneficial ownership
The two types of businesses the beneficial rule applies to include domestic reporting companies and foreign reporting companies.
A beneficial owner is someone who directly or indirectly exercises substantial control over a company or directly or indirectly owns or controls 25% or more of a company’s ownership interest. Even when a person doesn’t own a substantial percentage of the company’s stock or hold a formal title but has significant influence over the activities of the company, they can still be a beneficial owner.
2.1 Exemptions from the reporting requirements
There are 23 categories of exemptions. Some of them are publicly traded companies, banks, credit unions, securities brokers/dealers, tax-exempt entities and more.
3.1 When are we required to submit a BOI report?
For new entities registered in 2024, they must file within 90 days. Those new entities registered after 12/31/2024 must file within 30 days. Existing entities must file by 1/1/2025.
Changes to previously filed information must be filed within 30 days.
3.2 What information need to include in a BOI report
- Business’s legal name, trade names, DBA names
- Street address of its principal place of business
- Jurisdiction of formation
- Taxpayer identification number
- Identifying information of beneficial owners:
- Name, date of birth, address of all beneficial owners
- Unique identifying number from an acceptable identification document
- Submit an image of identification document to FinCEN
4.1 The penalties for noncompliance?
Any company that fails to file a required beneficial ownership report or amendment by its deadline is subject to a fine of $500 per day up to a maximum of $10,000. Intentionally filing inaccurate information is a felony.
There is a 6-month extension of the BOI reporting deadline for victims of recent hurricanes. FinCEN announced those affected by Milton, Helene, Debby, Beryl and Francine can receive additional six months to submit their reports or make any corrections.
5.1 Current developments
On December 3, 2024, U.S. The District Court for Eastern District of Texas issued a nationwide preliminary injunction, which temporarily blocked the enforcement of the Corporate Transparency Act (CTA) and its implementation.
The Financial Crimes Enforcement Network (FinCEN) has responded that reporting companies are not required to report BOI to FinCEN as long as the preliminary injunction remains in effect. Per FinCEN, reporting companies may continue to voluntarily submit BOI reports.
On December 5, 2024, on behalf of the Department of the Treasury, the Department of Justice filed a notice of appeal of the district court’s decision.
6.1 Conclusion
The injunction seems to mark the beginning of legal challenges for the Corporate Transparency Act. The future of the CTA and BOI reporting remains unpredictable at this point. Businesses are recommended to stay up-to-date and carefully evaluate their next steps regarding compliance with the CTA.