With the deadline for the Corporate Transparency Act (CTA) fast approaching, the Financial Crimes Enforcement Network (FinCEN) continues to clarify beneficial ownership reporting requirements. Small businesses and other entities must submit beneficial ownership information (BOI) by January 1, 2025, although earlier deadlines apply for newly established businesses. FinCEN's goal is to use this information to combat illicit activities involving shell companies.

The CTA requires businesses to report who ultimately controls or owns them, with strict penalties for noncompliance, including fines of up to $10,000 and potential imprisonment for up to two years.

Local Outreach Efforts

FinCEN has been hosting events nationwide to raise awareness, including one in August with Representative Nydia Velázquez in New York City. At the event, FinCEN's Deputy Director, Jimmy Kirby, explained the rationale behind the reporting requirements—to combat money laundering, terrorist financing, and other serious crimes such as fraud and identity theft. Kirby emphasized the importance of small businesses filing their BOI reports promptly, noting that for companies with simple ownership structures, the process should take about 20 minutes and can be completed without an attorney or accountant.

FinCEN Webinar and BOI Details

In a July 24 webinar co-hosted by the Small Business Administration, FinCEN officials explained why BOI reporting is necessary, noting that criminals often use shell companies to conceal illicit gains. Reporting beneficial owners will bring transparency to corporate ownership and aid law enforcement in protecting the economy.

Phil Lam, FinCEN's Beneficial Ownership and Innovation Chief, clarified that businesses created by filing paperwork with a secretary of state or similar office must submit BOI reports. However, sole proprietors in many states may be exempt. Foreign entities registered to operate in the U.S. must also comply. Lam emphasized that this is not a "gotcha" exercise. The enforcement will focus on willful violations, and small businesses making a good-faith effort to comply should not be overly concerned.

Michael Dobson, FinCEN Senior Advisor, provided further details on the BOI regime, explaining that once a report is filed, it is not an annual obligation. Updates are only required if there are changes in beneficial ownership or other relevant information, with a 30-day window to file corrections.

Who Qualifies as a Beneficial Owner?

A beneficial owner holds at least 25% ownership interest or exercises substantial control over the business. This includes senior officers, individuals who can appoint or remove key personnel, and those who can make significant decisions, such as changing the company's line of business or disposing of substantial assets. Specific individuals, such as minor children, nominees, intermediaries, and creditors, are excluded.

Updated FAQs and Additional Clarifications

FinCEN continues to update its FAQs, including new guidance on "disregarded entities." These entities—whose owners report their income and deductions on personal tax returns—must still submit BOI reports if they meet the definition of a reporting company.

FinCEN also clarified how new companies can obtain tax identification numbers to ensure the timely filing of their BOI reports. Companies cannot submit their BOI reports without a valid tax identification number and should gather all necessary information as soon as possible.

Reporting to Financial Institutions

FinCEN also issued a notice clarifying that businesses may need to provide BOI to FinCEN and their financial institutions as part of federal customer due diligence requirements. The definitions and required information differ, and FinCEN plans to revise its requirements for financial institutions in light of the CTA.

Stay Compliant with Brinker Simpson

Navigating the new beneficial ownership reporting requirements can be complex, but Brinker Simpson & Company is here to help. Our experienced team can guide you through the process and ensure your business remains compliant. Contact us today to learn how we can assist you with BOI reporting and other tax and compliance matters.