Many people have heard about a new law that requires many small businesses to report certain information to the US government to prove the identity of their “beneficial owners.” It is important to note that as of December 2, 2023, there is no reporting system in place.
The Corporate Transparency Act (CTA) established uniform beneficial ownership information (BOI) reporting requirements for certain corporations, LLCs, partnerships and other entities created in or registered to do business in the United States. This rule is intended to help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity.
These individuals and entities must all obtain Financial Crimes Enforcement Network (FinCEN) identifiers.
Below are some questions and answers regarding the new law.
When will the law be effective?
January 1, 2024
When are the reports due?
A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership report.
New companies created between January 1, 2024, and December 31, 2024, will have 90 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.[1]
New companies created on or after January 1, 2025, will have 30 calendar days to report.
Who has to file?
Certain businesses must file reports with FinCEN annually about every individual who is a “beneficial owner.” Companies created on or after January 1, 2024, must also report this information for any “company applicants.”
Who meets the definition of a “beneficial owner”?
Any individual who exercises “substantial control” over the entity or who controls at least 25% of the company’s ownership, including profits-only interests.
Who meets the definition of a “company applicant”?
An individual who files a document that creates or registers the reporting company or who was primarily responsible for directing or controlling the filing. Attorneys and paralegals may fall under this definition.
Who meets the definition of an individual who exercises “substantial control”?
- An individual who is a senior officer, including general counsel, chief executive officer (CEO), chief financial officer (CFO), chief operating officer (COO) or any other officer who performs a similar function
- An individual who has authority to appoint or remove certain officers or a majority of directors of the reporting company
- An individual who is an important decision-maker for the reporting company
- An individual with any other form of substantial control over the reporting company
Is there a tax or fee associated with filing the report?
No.
How does a business file the report?
FinCEN is responsible for collecting these reports. These reports are to be filed electronically through FinCEN, but the filing system is not yet available as of the date of this article.
What companies are required to report?
Any nonexempt company created by the filing of a document with a secretary of state or similar office under state law or Indian tribe, including foreign companies.
Who is exempt from filing?
There are 23 types of entities that are exempt from filing these reports, including accounting firms, investment advisors, banks and credit unions, security brokers, insurance companies, nonprofits, and inactive entities, among others:[2]
What information must be disclosed about beneficial owners and/or company applicants?
- Legal name
- Date of birth
- Residential address
- Unexpired copy of identifying document, which can only be a passport, driver’s license or other US government identification
This is not a comprehensive list of all aspects of the new rule; please review this information with your accountant and attorney to see if your company must file. We expect further changes to this rule to be announced in the coming months, so check back for updates.
If you have any questions regarding your personal financial planning or tax planning, please reach out to our team.
Disclaimer/Author(s) Bio: This is not to be considered investment, tax, or financial advice. Please review your personal situation with your tax and/or financial advisor. Milestone Financial Planning, LLC, (Milestone), a fee-only financial planning firm and registered investment advisor in Bedford, NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our client’s interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors. Advisory services are only offered to clients or prospective clients where Milestone and its representatives are properly licensed or exempt from licensure.
