On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction halting the implementation and filing requirements of the BOI. This action comes just weeks before the January 1, 2025 deadline for most entities to comply.
While this injunction is preliminary and not permanent, it does temporarily halt those obligations for entities to comply with the CTA’s BOI reporting requirements. It is anticipated that further legal developments will be forthcoming over the next few days and weeks that could alter future filing requirements. We will provide additional updates as new information becomes available.
As a reminder, the general filing requirements that were in place prior to this injunction and our ability to file the reports are listed below.
Starting January 1, 2024, a significant number of businesses will be required to comply with the Corporate Transparency Act ("CTA). The CTA was enacted into law as part of the National Defense Act for Fiscal Year 2021. The CTA requires the disclosure of the beneficial ownership information (otherwise known as "BOI") of certain entities from people who own or control a company.
The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury. By having access to the "beneficial ownership" information, law enforcement agencies and financial institutions will be better equipped to investigate and track illicit financial activities.
After careful deliberation, we have decided that Rudler will not be preparing or assisting with the filing of these reports. There is very little guidance on who may provide assistance, and assisting with this reporting could be considered a corporate disclosure matter that may fall under the practice of law.
The following information is meant to be general in nature and should not be applied to your specific facts and circumstances without consultation with competent legal counsel or specialized adviser.
Filing Report Requirements and Exemptions
The requirement to submit reports extends to both domestic and foreign reporting companies. Domestic and Foreign companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Are there any exemptions from the filing requirements?
It's important to note that the CTA exempts 23 categories of entities from the beneficial ownership information reporting requirement.
Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their SOI to a government authority.
Inactive entities are entities that existed before January 1, 2020, that are not engaged in active business, are not owned by a foreign person, have not had a change in ownership in the last 12 months, have not sent or received funds greater than $1,000 in the last 12 months, and do not hold any assets.
Large Operating Entities are defined as those that:
- Employs more than 20 full-time employees in the U.S.,
- Have an operating presence at a physical office in the U.S., and,
- Demonstrate more than $5 million in gross receipts/sales on their prior year federal income tax return (excluding receipt/sales from sources outside the U.S)
Additionally, domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
Who is a beneficial owner?
Any individual who, directly or indirectly, either:
- Exercises "substantial control" over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests of a reporting company
An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
The detailed CTA regulations define the terms "substantial control" and "ownership interest" further.
What sort of information is required to be reported?
Companies must report the following information: full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).
Additionally, information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes - name, birthdate, address, and unique identifying number and issuing jurisdiction from an acceptable identification document (e.g., a driver's license or passport) and an image of such document.
Filing Reporting Deadline
New entities created in 2024 will have 90 days to file a report.
Entities already in existence on January 1, 2024 have until January 1, 2025 to file a report. Entities that are created or registered in 2025 and beyond will have 30 days.
Entities that were recent victims of natural disasters were given additional time to file. Check the FinCEN website for more details.
Updates to reports must be made within 30 days after there is a change to previously reported information or a reporting company becomes aware that previously reported information is inaccurate.
Risk of non-compliance
Failure to comply with the CTA's reporting requirements, which require a certification that the reported information is "true, correct, and complete," may result in civil and criminal consequences. This includes a potential civil fine of up to $500 per day (capped at $10,000) and the possibility of imprisonment for a maximum of two years.
Additional information can be found regarding the Beneficial Ownership Information (BO1) reporting at the U.S. Government website fincen.gov/boi. or by contacting the Office of the Inspector General.
RUDLER, PSC CPAs and Business Advisors
This e-Tip is presented by Alex Weidner, CPA, CFE.
If you would like to discuss your particular situation, contact Alex at 859-331-1717.
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