Miracles Do Exist – Easing the Pain of a Corporate Transparency Act Filing
Filings Due January 1, 2025
In October 2023, we warned our readers of a new nightmare – beneficial ownership information (BOI) reporting under the Corporate Transparency Act (CTA). (Original article can be found here.) As the January 1, 2025 filing deadline approaches for entities formed before this year, we wanted to give you the benefit of our experience with preparing and filing BOI reports.
Over the past 12 months we got our own unique identifier numbers (more on that below) from the Treasury’s Financial Crimes Enforcement Network (FinCEN website); delved into plenty of organizational charts; and helped clients file many BOI reports.
We discovered that the FinCEN web site (https://fincen.gov/boi) works well and is simple to navigate. From the landing page, you can link to FinCEN’s FAQs (which are always being expanded) and educational materials; the application for a unique identifier number; or the portal for filing the actual BOI report.
But we have heard from clients that the process of filing a BOI report – or even just figuring out if you need to file on behalf of one of your companies – is a daunting process. So read on for some tips and tricks for filing your own BOI report.
Don’t be frightened – you may not need to file!
The CTA applies to entities that are formed by filing a document with a secretary of state’s office, such as corporations, LLCs and limited partnerships. Entities formed by other means, like sole proprietorships, family planning trusts, employee retirement plan trusts, or general partnerships/joint ventures, are not required to file a BOI report.
If you own a company that may be subject to the CTA, your company may still come under one of 23 exemptions, which the FinCEN website summarizes at https://fincen.gov/boi-faqs#C_2. If you’re not inclined to click on yet-another link, there are three broad categories of exemptions:
- Entities that are already subject to heavy federal reporting requirements where, in many cases, the reports are available to the public – for example, publicly-traded entities that file reports regularly with the SEC, or tax-exempt entities under Internal Revenue Code section 501(c) which file form 990 returns with the IRS.
- Entities with a low risk profile for engaging in money laundering or similar activities – for example, a government instrumentality; or a company with more than 20 employees, a permanent office in the US and $5 million or more gross receipts per year.
- A 100%-owned subsidiary of an entity in “(1)” or “(2)” above.
First Step – Identifying the “VIPs”
If you do need to file a BOI report, you still don’t need to fret - with a little homework, you can file the report with just a few clicks. The first and most onerous step is identifying three categories of individuals:
- for companies formed in 2024 or later, the “company applicant”, meaning the person who oversaw the filing of the formation documents (in many cases, this will be your attorney);
- for any company, any “live human” with substantial control over the entity’s affairs (each a “beneficial owner”) such as the entity’s managers, directors and “high-level” officers (CEO, CFO, Secretary, COO); and
- for any company, any “live human” that directly or indirectly owns 25% or more of equity (as with “(2)” above, each also a “beneficial owner”).
Item “(3)” above is the most complicated, because it requires tracing ownership through the chain of intermediary entities where an individual may hold an interest until you reach a live person. However, if you learn an owner is exempt from reporting, you can indicate so on the report and stop the inquiry there.
Second Step – Decrease the Admin Burden
Once you’ve identified the company applicant and beneficial owners, the next step is key to taking the “nightmare” out of the reporting process. Normally, for each person you’ve identified you’ll need to provide private personal information (name, address (usually residence) and an identifying document such as a passport or driver license). To decrease the administrative burden, you should convince each individual to get their own unique identifier number from the FinCen website.
A unique identifier is similar to a TSA Pre-Check Number – it’s an applied-for identifier that consolidates all the applicant’s personal information in one place. You can then input the identifier instead of each person’s private information into the BOI report. And, if the person updates the information associated with their identifier, that update auto-populates across all companies the identifier was applied to.
Anyone can sign up for an identifier through Login.Gov, which many people already use to access TSA Pre-Check, Global Entry and even some state motor vehicle departments online.
The application itself is relatively simple – it’s a single page that asks for name, address and identification card information (i.e., drivers license, or passport).
Make sure to keep a photo of your method of identification handy, so that you can drag and drop it into the identifier number application.
The key selling point? The identifier number application should only take 10 minutes!
Third Step - Collect and Submit
Once you have everyone’s unique identifiers, the rest of the process is just a matter of data entry. To file the BOI report, you can either download a PDF to fill out and submit, or you can e-file online. Either way, you will simply need to fill-in-the-blanks. For example, filling in the company applicant’s information should be as simple as populating their identifier number into the blank spaces.
The PDF and the online website will have some visual differences, but the content is the same. There will be blank spaces, drop-down menus and check-boxes as you move through.
If you choose to go the PDF route, make sure to read the instructions at the top of the PDF. The key here is to use the “validate” and “finalize” buttons at the top of your report before submission and then “print to PDF”. The online website will reject any forms that haven’t been validated, finalized and printed.
Once the website accepts the submitted application, it will send you a receipt. Keep a copy of that receipt for your records. Since this reporting regime is new, we don’t know yet what all the complications will be, but holding onto proof of submission is a reasonable practice.
See, it’s not a “nightmare”…right?
As always, making your best efforts to comply is always better than not reporting at all. Although you may see articles discussing monetary fines and even imprisonment for non-compliance, FinCen has said those sanctions are for “willful” violations of the CTA (basically, a deliberate attempt not to comply or to evade detection, while knowing of the filing requirements). For now, FinCEN is more interested in encouraging compliance and expanding its outreach efforts. Note, however, that this landscape is ever-evolving – in fact, a federal district court in Alabama has ruled that Congress didn’t have the necessary power to enact the CTA (see our eAlert here). So as the courts do their best to figure out the landscape of filing, keep making best efforts to file and update your BOI reports.
