What You Need to Know: The Corporate Transparency Act's Beneficial Ownership Information Reporting Requirements

Last year, we wrote about the Corporate Transparency Act (CTA)’s beneficial owner information (BOI) reporting requirements and how they would, as implemented by the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), affect small business owners. As of January 1, 2024, the new rule has gone into effect and now applies to any business entities in the US that are not exempt. The BOI requirements are significant, as noncompliance comes with some stiff penalties. This article will provide an overview of the BOI reporting requirements, who they apply to, and what you need to know and do as a business owner in Florida.

The CTA's Stated Purpose: Shining a Light on Hidden Control and Ownership

According to FinCEN’s fact sheet, the new act will help “enhance the ability of FinCEN and other agencies to protect U.S. national security and the U.S. financial system from illicit use…and help prevent drug traffickers, fraudsters, corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States.”

Critics of the new rule argue that the advance notice of several years from when the rule was proposed to when it actually went into effect gives the bad actors targeted by the rule way too much advance notice. In addition, with a list of 23 exceptions to the rule, many large institutions and businesses (who some might say are the ones most likely to engaged in the targeted illicit activity in the first place) will not have to comply with the BOI reporting requirement. Instead, small businesses are the ones feeling the weight of this new regulatory scheme.

Nevertheless, in order to stay in compliance, business owners need to be aware of how this new rule impacts them, and what steps they will need to take now and in the future.

Does the CTA Apply to Your Florida Business?

If your business had to register with the Secretary of State when it was formed, then the first step is to review the list of exemptions to see if your business fits into one of them. The following table is provided directly from FinCEN’s own website (https://www.fincen.gov) and is current as of the date of writing this article. However, you are encouraged to keep abreast of the rule to ensure no exemptions are added or removed. Here is the list of exemption categories:

1. Securities reporting issuer
2. Governmental authority
3. Bank
4. Credit union
5. Depository institution holding company
6. Money services business
7. Broker or dealer in securities
8. Securities exchange or clearing agency
9. Other Exchange Act registered entity
10. Investment company or investment adviser
11. Venture capital fund adviser
12. Insurance company
13. State-licensed insurance producer
14. Commodity Exchange Act registered entity
15. Accounting firm
16. Public utility
17. Financial market utility
18. Pooled investment vehicle
19. Tax-exempt entity
20. Entity assisting a tax-exempt entity
21. Large operating company
22. Subsidiary of certain exempt entities
23. Inactive entity

The exemption that most Florida business owners may find to be applicable is the “Large operating company” exemption. This exemption applies if you can answer “Yes” to ALL of the following 6 questions:

1. The entity employs more than 20 full time employees, when applying the meaning of full-time employee provided in 26 CFR 54.4980H-1(a) and 54.4980H-3. In general, “full-time employee” means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer.
2. More than 20 full-time employees of the entity are employed in the “United States,” as that term is defined in 31 CFR 1010.100(hhh).
3. The entity has an operating presence at a physical office within the United States. “Operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.
4. The entity filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales. If the entity is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504, refer to the consolidated return for such group.
5. The entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form.
6. When gross receipts or sales from sources outside the United States, as determined under Federal income tax principle, are excluded from the entity’s amount of gross receipts or sales, the amount remains greater than $5,000,000.

If you do not meet one of the exemption criteria, then keep reading to learn about what steps you must take to comply with the BOI reporting requirements.

What do I need to File?

The report must set forth the reporting company’s (1) full legal name, (2) any trade or “doing business as” names, (3) complete current street address of the principal place of business, (4) jurisdiction of formation, and (5) taxpayer identification number.

For each of the ‘beneficial owners’, the report must include (1) full legal name, (2) date of birth, (3) complete current residential street address (except in the case of a company applicant who forms or registers an entity in the course of the company applicant’s business, who has to provide the street address of the business), (4) unique identifying number and the issuing jurisdiction from either a current (i) U.S. passport, (ii) state or local ID document, (iii) driver’s license, or (iv) if the individual has none of those, a foreign passport, and (5) an image of the document from which the unique identifying number was obtained.

Who is considered a ‘Beneficial Owner’?

Under this rule, a ‘beneficial owner’ is considered as any individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25% of the company’s ownership interests.

What is the Filing Deadline?

According to FinCEN’s small entity compliance guide, the following information will help you determine when your US-based domestic company must file by:

If your Company Already exists as of 1/1/2024 Then you must File your initial BOI report by 1/1/2025

If your Company Is created on or after 1/1/2024 Then you must File your initial BOI within 90 days

If your Company Is created on or after 1/1/2025 Then you must File your initial BOI within 30 days

Do I have to File an Updated Report?

Yes – if changes are made. According to FinCEN’s small entity compliance guide, if there is any change to the required information about your company or its beneficial owners in a BOI report that your company filed, your company must file an updated BOI report no later than 30 days after the date on which the change occurred.

The following are examples (not an exhaustive list) of situations where an updated BOI report may be required:

1. Any change to the information reported for the reporting company, such as registering a new DBA.
2. Any change in beneficial owners, such as a new Chief Executive Officer, a sale that changes who meets the ownership interest threshold of 25 percent, or the death of a beneficial owner.
   Note: When a beneficial owner dies, resulting in changes to the reporting company’s beneficial owners, report those changes within 30 days of when the deceased beneficial owner’s estate is settled. The updated report should, to the extent appropriate, identify any new beneficial owners.
3. Any change to a beneficial owner’s name, address, or unique identifying number provided in a BOI report.

Note: If a beneficial owner obtained a new driver’s license or other identifying document that includes the changed name, address, or identifying number, the reporting company also would have to file an updated beneficial ownership information report with FinCEN, including an image of the new identifying document.

Where Do I File?

FinCEN has an online filing portal which can be found here: https://www.fincen.gov/boi

What happens if I don’t file on time?

According to FinCEN’s published small entity compliance guide, “the willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision of or attempt to provide false or fraudulent beneficial ownership information may result in a civil or criminal  penalties, including civil penalties of up to $500 for each day that the violation continues, or criminal penalties including  imprisonment for up to two years and/or a fine of up to $10,000.” (emphasis added).

In addition, “[s]enior officers of an entity that fails to file a required BOI report may be held accountable for that failure.”

Unraveling the intricacies of the CTA can feel overwhelming. Thankfully, our team is standing by to assist you with:

• Assessing your CTA applicability
• Identifying and verifying beneficial owners.
• Preparing and submitting your initial BOI report filing

Get in touch with us today if you have any questions. Also, note that this article is not intended as a substitute for legal advice. You should you consult a lawyer before taking any action (or failing to take action) based on the BOI reporting requirements or this article.