Final Ruling on Beneficial Ownership Information Reporting – What You Need to Know
October 12, 2022
At a glance
- The main takeaway: The Financial Crimes Enforcement Network (FinCEN) issued a final ruling that will require certain domestic and foreign entities to provide reports identifying beneficial ownership information and company applicants.
- Impact on your business: This rule is intended to protect the US financial system from money laundering and other types of financial fraud by providing critical information to government agencies charges with national security.
- Next steps: Unsure where to start? Aprio’s Tax team can help you prepare and comply with the new reporting requirements. Schedule a consultation with an Aprio Tax professional today.
The full story:
To combat money laundering and other types of financial fraud, the Financial Crimes Enforcement Network (FinCEN) issued a final ruling under the Corporate Transparency Act’s (CTA) beneficial ownership information (BOI) reporting provisions. The rule, effective January 1, 2024, is intended to protect the United States (US) financial system from abuse, while providing government agencies charged with national security the critical information needed to prevent criminal actors from laundering or hiding money and other assets in the US.
Under the final ruling, certain companies are required to file reports with FinCEN that identify the beneficial owners of the entity and the entity’s company applicants. Additionally, the rule provides details on who must file a report, what information must be reported and when the report is due. We’ve outlined these details below:
Who must file a report?
The entities who must file a report are defined as either:
- A domestic reporting company, which is a corporation, limited liability company (LLC), or any entity created by the filing of a document with the Secretary of State or any similar office under the law of a State or Indian tribe.
- A foreign reporting company, which is a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any State or tribal jurisdiction by the filing of a document with the Secretary of State or any similar office.
There are several types of entities which are exempt from the definition of “reporting company,” including, but not limited to:
- Certain governmental authorities
- Tax-exempt organizations
- Banks and broker-dealers
- Investment companies
- Insurance companies
- Accounting firms and “large operating” companies
A “large operating company” is defined as an entity which employs more than 20 full-time employees in the US, has an operating presence at a physical office within the US and has filed a federal income tax, or information return in the US for the previous year demonstrating over $5,000,000 in gross receipts or sales.
Who are the beneficial owners?
A beneficial owner is any individual who is able to make important decisions on behalf of the entity. More specifically, a beneficial owner is any individual who, directly or indirectly, either exercises substantial control over a reporting company, or owns or controls at least 25% of the ownership interests of a reporting company.
Those exempt from meeting the definition of a beneficial owner, include, but are not limited to:
- A minor child
- An individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual
- Certain employees of the reporting company
- A creditor of a reporting company
Who are the company applicants?
A company applicant is either the individual who directly files the document that creates the entity, or in the case of a foreign reporting company, the document that first registers the entity to do business in the US; or the individual who is primarily responsible for directing or controlling the filing of the relevant document by another.
Companies which existed or were registered at the time of the effective date of the rule are not required to identify and report on their company applicants. In addition, reporting companies formed or registered after the effective date of the rule do not need to update company applicant information.
What information must be reported?
When filing the reports, a reporting company needs to identify itself and four pieces of information about each of its beneficial owners — name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable identification document with the image of such document.
When is the report due?
- Reporting companies created or registered before January 1, 2024, will have one year (until January 1, 2025) to file their initial reports.
- Reporting companies created or registered after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports.
- Reporting companies will have 30 days to report changes to the information in their previously filed reports, and must correct any inaccurate information within 30 days of becoming aware of the inaccuracy in earlier reports.
The bottom line
While FinCEN plans to develop guidance to assist reporting companies, it can be overwhelming to comb through these documents. Aprio’s Tax team can provide you with detailed reporting information to ensure you are in compliance with the new beneficial ownership information reporting requirements.
Schedule a consultation with Aprio’s Tax team today.
About the Author
Mitchell is the partner-in-charge of Aprio’s Tax practice as well as the Technology & Biosciences group. He has been a partner since 1990 with Aprio, which is the largest Georgia-based tax, accounting and consulting firm. Mitchell works with companies in the software, gaming, clean tech, financial technology (FinTech), health care IT, processing, biosciences (biotech and medical device) and manufacturing industries. Whether a company is pre-revenue, starting up, growing or preparing for a liquidity event, Mitchell works with them to maximize their potential at each stage. He is known for promoting research, innovation and entrepreneurship by enabling companies to be successful, regardless of where they are in their business lifecycle.