Episode 450: Beneficial Owner Information Reports: Filing Requirements and Processes

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The Corporate Transparency Act (CTA) is a federal anti-corruption and anti-money laundering law that came into effect on January 1, 2024. Among its provisions is the beneficial owner information report (BOIR), which many business entities are required to file, or they may face significant penalties that can increase quickly.

BOIRs are filed with the Financial Crimes Enforcement Network (FinCEN) and are used to identify the entity’s beneficial owners. This is meant to assist FinCEN with identifying bad actors hiding behind business entities to engage in criminal activity. If your organization is engaged in legitimate business, there’s no reason not to comply with the CTA.

Who is a Beneficial Owner?

Beneficial owners must be identified on a BOIR. To be considered a beneficial owner, either of the following must be true about an individual:

• They own at least 25 percent of a reporting company.
• They maintain “substantial control” over a reporting company.

The CTA’s definition of “substantial control” is somewhat open-ended, but in general, if any of these are the case for an individual, they likely need to be identified on a BOIR:

• The individual is a senior officer (a president or chief officer) or general counsel
• The individual is a general partner of a limited partnership
• The individual has the authority to remove other officers
• The individual has control over intermediary entities that possess substantial control over the reporting entity

Who Must File a Beneficial Owner Information Report, and What Entities are Exempt?

Entities that must file a BOIR include limited liability corporations (LLCs), non-publicly traded corporations, and limited partnerships (including limited liability partnerships and family limited partnerships).

Exempt entities include publicly traded corporations, sole proprietorships, non-profit corporations, most trusts, and inactive entities. These entities are not required to file a BOIR with FinCEN. Further, some beneficial owners do not need to be included on a BOIR, including minor children, individuals whose only interest in the reporting company are through a future inheritance, certain creditors, and employees who are not senior officers and whose economic or control benefits are based on their employment status within the company.

What if a Beneficial Owner is Another Entity or a Trust?

If you’ve previously filed a BOIR for a reporting entity and that entity is the beneficial owner of another reporting entity – LLC 1 owns LLC 2, for example, and both need to file a BOIR – you should be able to use a FinCEN number that the reporting system generates upon reporting, and then you can use the FinCEN number to report the beneficial owner information for LLC 2.

However, some have encountered issues with FinCEN’s online filing system that occasionally makes this shortcut entry of a FinCEN impossible without re-entering all of the “end-of-the-line” beneficial owner information for the second entity. This shouldn’t be a problem, as long as you know who the beneficial owners are for the second entity, you can just enter their information to complete the process.

If the entity’s beneficial owner is a trust, check the box that says, “beneficial owner is an exempt entity” and enter the name of the trust in the box.

How is a Beneficial Owner Information Report Filed with FinCEN?

Anyone who is authorized by the reporting entity to file a BOIR may do so. This individual must also provide their personal information (or create their own FinCEN number and provide it) on the BOIR for compliance purposes.

To file a BOIR with FinCEN, go to the agency’s website. Once there, click on “File BOIR” and click on the Web option to File Online. There are numerous prompts to click through and some instructional videos online to watch that demonstrate how to file the BOIR. When submitting the report, the following information will be required:

• The reporting entity’s name, company EIN, company address and state of formation.
• The reporting agent’s personal information. If this individual will file many BOIRs in the future, it is recommended that they request a FinCEN number, as this will speed up the process for subsequent BOIRs.
• The name, address, birthdate and driver’s license or passport information for all beneficial owners, along with a copy of their IDs (either in PDF or JPEG format).

Once the BOIR is filed, make sure to download the filing submission when prompted at the end of the filing process. This is proof that your organization has filed the BOIR. Be sure to save the submission ticket under a document name for the entity that corresponds to the BOIR just submitted. The filing ticket itself will not have the entity name on it.

If you believe that incorrect information has been submitted with the BOIR, the process can be restarted by clicking the “Correct a BOIR” button on the agency’s filing website.

What are the Penalties if a Reporting Entity Fails to File a BOIR?

The CTA stipulates that any reporting entity that willfully violates BOIR reporting requirements are to be assessed a civil penalty of up to $500 each day that the violation continues.

However, none of the May Firm’s clients (that we are aware of) have received warning from FinCEN that they are past filing requirements or have been assessed fines. Given the number of reporting entities that FinCEN must obtain information from, as well as the difficulties in obtaining information from existing companies that must still file, it is likely that it will be some time before the agency reaches out to non-filers and threatens penalties.

That said, it is recommended to comply with BOIR filing requirements and submit beneficial owner information voluntarily. If your business still hasn’t filed its BOIR, there is still time to do so and avoid any penalties.

Prepare Your Organization with Timely BOIR Filing with an Attorney’s Assistance

Filing a BOIR is a relatively straightforward and simple process for reporting entities. However, if your organization is unsure how to proceed with the CTA and with BOIR filing, an experienced business attorney can provide guidance.

Although many questions remain regarding the CTA’s impact on businesses, including when and how FinCEN will enforce BOIR filing, prompt and accurate filing will ensure your organization isn’t surprised by penalties or additional scrutiny from the agency.

By Harold "Hap" May, P.C. on November 8, 2024   /   Uncategorized   /   Leave a comment