New CTA reporting delayed, but only for some

Certain companies will soon be required to provide information related to their “beneficial owners” — the individuals who ultimately own or control the company — to the Financial Crimes Enforcement Network (FinCEN), although some will benefit from a newly extended deadline.

The reporting rules, which are included as part of the Corporate Transparency Act (CTA), were to go into effect across the board on January 1, 2024. FinCEN estimates that the rule will impact 32.6 million companies in 2024 alone. Failure to comply may result in civil or criminal penalties, or both.

AICPA, others appeal for deadline change

With many businesses not ready for the looming deadline, the American Institute of Certified Public Accountants (AICPA) and more than 50 affiliated organizations recently urged FinCEN to issue a one-year deadline extension of the effective date for the beneficial ownership information (BOI) reporting rules. In a four-page letter co-signed by CPA associations in all 50 states; Washington, D.C.; Guam; and the Virgin Islands, it requested a one-year extension of the effective date for the BOI reporting requirements for all new entities created in 2024, all entities created thereafter, and all entities making updates or corrections to their original filings.

On November 29, FinCEN announced it would extend the filing deadline for entities created or registered during 2024 to 90 days — previously 30 days — from the earlier of either:

• The date on which the company receives actual notice that its creation or registration has become effective
• The date on which the secretary of state first provides public notice that the company has been created or registered

The AICPA argues that change doesn’t go far enough.

Broad scope

The rules generally apply to both domestic and foreign privately held reporting companies. For these purposes, a reporting company includes any corporation, limited liability company or other legal entity created through documents filed with the appropriate state authorities. A foreign entity includes any private entity formed in a foreign country that’s properly registered to do business in a U.S. state.

There’s a key exemption for “large operating companies” that:

• Employ more than 20 employees on a full-time basis
• Have more than $5 million in gross receipts or sales (not including receipts and sales from foreign sources)
• Physically operate in the United States

In total, the CTA provides exemptions from the BOI reporting requirements for 23 types of entities, including financial institutions, securities brokers and insurance companies. Many exempt entities are already regulated by federal or state governments and already have BOI filing requirements.

Extensive reporting requirements

A beneficial owner is defined as someone who, directly or indirectly, exercises substantial control over a reporting company, or owns or controls at least 25% of its ownership interests. The CTA requires reporting companies to provide detailed information about their “company applicants.” A company applicant is defined as the person who is either:

• Responsible for filing the documents that created the entity (for a foreign entity, this is the person who directly files the document that first registers the foreign reporting company to conduct business in a state)
• Primarily responsible for directing or controlling filing of the relevant formation or registration document by another.

BOI reports must include the following information:

• The legal name of the entity (or any trade or doing-business-as name)
• The address of the entity
• The jurisdiction where the entity was formed
• The entity’s Taxpayer Identification Number
• The name, address, date of birth, unique identifying number information of the beneficial owners (such as a U.S. passport or state driver’s license number), and an image of the document that contains the identifying number

Reporting companies have 30 days, 90 days, or one year from the effective date (January 1, 2024) to comply with the reporting requirements. The deadline to comply depends on the entity’s date of formation. Reporting companies created or registered prior to January 1, 2024, have one year to comply by filing initial reports. Those created or registered on or after January 1, 2024, but before January 1, 2025, will have 90 days upon receipt of their creation or registration documents to file their initial reports. Those created or registered on or after January 1, 2025, will have 30 days upon receipt of their creation or registration documents to file their initial reports.

BOI reports filed with FinCEN aren’t accessible by the public. However, certain government agencies will have access to the information, including those involved in national security, intelligence and law enforcement, as well as the IRS and U.S. Treasury Department.

An omission or fraudulent BOI filing could result in civil fines of $500 a day for as long as the reports are missing or remain inaccurate. Failure to comply may also trigger criminal penalties of a $10,000 fine — or even jail time of two years.

Learning curve

The AICPA cites a recent survey by the National Federation of Independent Business that showed 90% of its members, particularly smaller companies, weren’t familiar with the BOI reporting rules. “Regardless of FinCEN’s activities to raise awareness, their efforts remain ineffective, and most businesses are unaware of this filing requirement,” said the letter. It also said that FinCEN has “woefully underestimated” the time and stress the new requirements will cause businesses.

FinCEN estimates that compliance will take over 32.8 million burden hours (about one hour per entity) with an estimated cost of more than $2,600 per entity, depending on its structure. These estimates don’t include additional resource requirements for businesses, particularly in the first year, to understand and identify who’s a “beneficial owner,” who exercises “substantial control,” who’s a “company applicant” or whether a small business even is considered a “reporting company.”

Plus, businesses will need to continuously track all beneficial owners’ information for changes that could or have happened each month. According to the AICPA, something as simple as an expired driver’s license would require an updated BOI filing. The AICPA letter concludes, “FinCEN should give all businesses a fair time frame to gain awareness and a reasonable time frame to comply with the BOI requirements.”

More to come?

Two bills (H.R. 4035 and S. 2623) are being considered in Congress that would delay implementation of the BOI reporting rules. FinCEN hasn’t yet responded directly to the request from the AICPA to further extend the deadline or expand the scope to cover more businesses.

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