Tag: BOIR

The CTA Filing Deadline is Approaching. Is Your BOIR Filed Yet?

The clock is ticking—just 49 days remain until the one-year filing deadline for the Corporate Transparency Act (CTA)! Entities established before January 1, 2024, must submit a beneficial owner information report (BOIR) by December 31, 2024.

The CTA is a new reporting requirement that came into effect on January 1, 2024. The CTA requires any entity created by or registered to do business by the filing of a document with a secretary of state, or another similar office, to report its information and its beneficial owners to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the United States Treasury. The goal is to decrease money laundering and fraud.

We previously published advisories on the general application of the CTA and its specific application to entities created for estate planning purposes. The rules and guidelines about which we previously reported are largely unchanged. A reporting company still needs to report its legal name, all trades and d/b/a names, address, and beneficial owners. Beneficial owners are those with substantial control or who own or control 25% or more of the reporting company, directly or indirectly. The reporting company needs to report each beneficial owner’s name, date of birth, residential address, and an identifying number and image from one of four acceptable identification documents.

Although the CTA was declared unconstitutional by a federal district court in Alabama, the ruling only prevents the CTA’s enforcement on the parties directly involved in the case. The court did not issue a nationwide ruling to prevent the law from being enforced. Thus, other companies are expected to continue filing BOIRs. The Alabama case is currently on appeal and oral arguments were held at the end of September 2024.

FinCEN has been periodically updating its Frequently Asked Questions to provide some clarification since the CTA became effective. We outline the most relevant guidance below:

General Updates:

  1. Entities that are created before January 1, 2024, even if dissolved sometime in 2024 before the December 31, 2024, deadline, must still report their information and beneficial owners by December 31, 2024.
  2. Entities that are created in 2024 have 90 days to file the BOIR. Entities created on or after January 1, 2025, will have 30 days to file the BOIR. Entities that are created in 2024 but are wound up, dissolved, or otherwise cease to exist must still file the BOIR with FinCEN.
  3. Beneficial ownership is determined in the aggregate. This means that companies need to analyze each beneficial owner to determine if he or she indirectly/directly substantially controls or owns 25% or more of a reporting company. For example, Individual X owns 10% of Company Y. Individual X is also trustee of a trust that owns 20% of Company Y. Individual X needs to be reported as a beneficial owner because he owns an aggregate 30% of the company.
  4. Beneficial owners may now apply for a FinCEN Identifier here. This allows the beneficial owners to report their information to FinCEN directly, obtain an Identifier number, and simply provide the Identifier to those reporting companies of which he or she is a beneficial owner. This prevents a beneficial owner from having to share personal and sensitive information with a company. This also streamlines the process for any change in the beneficial owner’s information. Each beneficial owner can log into FinCEN and simply update the information within 30 days of the change rather than first providing it to the reporting company and then the company filing a new BOIR to update the information.

a. In order to create a FinCEN Identifier, an individual will have to create a login.gov account. This is the account that the federal government is using to streamline many of its services, such as, global entry and applying for federal jobs.

5. Reporting companies may complete and submit a BOIR online here. A company could also submit a PDF of the report at the same link if it chose to complete a paper copy. There is no fee to submit online. There are also many vendors offering a service to assist with the process and submit the report for a fee.

Real Estate/Corporate Updates:

6.FinCEN clarified that the subsidiary exemption applies when a subsidiary’s ownership interests are entirely controlled or wholly owned, directly, or indirectly, by any of the following types of exempt entities: (1) Securities reporting issuer; (2) Governmental authority; (3) Bank; (4) Credit union; (5) Depository institution holding company; (6) Broker or dealer in securities; (7) Other Exchange Act registered entity; (8) Investment company or investment adviser; (9) Venture capital fund adviser; (10) Insurance company; (11) State-licensed insurance producer; (12) Commodity Exchange Act registered entity; (13) Accounting firm; (14) Public utility; (15) Financial market utility; (16) Tax-exempt entity; or (17) Large operating company. Further, if a reporting company’s ownership interests are controlled or wholly owned by more than one exempt entity, the reporting company may still qualify for the subsidiary exemption if the entities are unaffiliated; however, every controlling or owning entity must itself be an exempt entity in order for the reporting company to qualify for the subsidiary exemption.

Trusts and Estates Updates:

7.If there is a corporate trustee, the reporting company will be reporting those individual beneficial owners that indirectly own or control at least 25% of the ownership interests of the reporting company through the ownership in the corporate trustee. This will be determined by multiplying the percentage of ownership of the corporate trustee with the trust’s ownership/control of the reporting company. For example, if Individual A owns 70% of the corporate trustee of a trust, and that trust holds 30% of the reporting company, Individual A holds or controls 21% of the reporting company (70% x 30 = 21). If Individual A owned 90% of the corporate trustee, then it would own/control 27% of the reporting company (90% x 30 = 27) and the company must report Individual A as a beneficial owner. There may be other beneficial owners if someone else at the corporate trustee exercises substantial control over the reporting company.

A reporting company may submit the corporate trustee’s information in lieu of each beneficial owner’s information only if all of these conditions are met:

a. The corporate entity is an exempt entity from the reporting requirements.

b. The individual owns or controls 25% of the reporting company only through the corporate trustee.

c. The individual does not exercise substantial control over the reporting company.

A company can obtain its own FinCEN Identifier when it submits an initial BOIR for its beneficial owner(s). This way, such company may be reported as a beneficial owner, such as a corporate trustee that meets the above requirements. For example, when LLC A reports Individual A as its beneficial owner, LLC A has the option of clicking a button to obtain its own FinCEN Identifier.

8. An individual who has the power to remove a trustee, remove and replace a trustee, and/or appoint an additional trustee is deemed to have substantial control through the power to change the person who makes decisions for the trust, and thereby, the reporting company. While this is not explicit in the Frequently Asked Questions, it is consistent with FinCEN’s position that someone who has the power to remove a senior officer of a reporting company is a beneficial owner.

While this is an extensive list, it is by no means an exhaustive list, and various circumstances not discussed above may change how the CTA applies in a particular case.

Copyright 2024 Goulston & Storrs PC.
For more on the CTA, visit the NLR Corporate Business Organizations section

FinCEN Publishes Updated FAQs

Entities terminated in 2024 are required to file Corporate Transparency Act beneficial ownership information reports, as are administratively dissolved entities.

The Financial Crimes Enforcement Network (“FinCEN”) recently published updates to its list of Frequently Asked Questions (“FAQs”) to assist entities in complying with the beneficial ownership reporting requirements of the Corporate Transparency Act (“CTA”).

Principal among these updates was FinCEN’s clarifying requirement that business entities terminated in the year 2024 (whether existing prior to 2024 or formed in 2024) are required to file beneficial ownership information reports (BOIR) under the CTA.

This filing requirement also expressly includes BOIR filings for administratively dissolved entities.

Each of these concepts were the subject of debate as to their applicability under the CTA prior to this FAQ release, with some conjecture that terminating an entity’s existence prior to its BOIR filing deadline would alleviate the need to make a BOIR filing – a position now refuted by FinCEN.

As Polsinelli has consistently advised, the obligation to file under the CTA has accrued for all entities in existence in 2024, only the deadline for filing the BOIR has not yet arrived. Entities are advised to file their BOIR prior to consummating their termination process.

The July 8 FAQs also included clarification on beneficial owner disclosure scenarios involving an entity fully or partially owned by an Indian Tribe.

FinCEN expects to publish further guidance in the future. The updated FAQs can be accessed here.

* * * * *

Several of the updates bear special note:

1. FAQ C. 12. – Reporting Company Status

Do beneficial ownership information reporting requirements apply to companies created or registered before the Corporate Transparency Act was enacted (January 1, 2021)?

FinCEN stated “Yes.” Beneficial ownership information reporting requirements apply to all companies that qualify as “reporting companies”, regardless of when they were created or registered. Companies are not required to report beneficial ownership information to FinCEN if they are exempt or ceased to exist (i.e., are formally terminated with the Secretary of State) as legal entities before January 1, 2024.

2. FAQ C. 13. – Reporting Company Status

Is a company required to report its beneficial ownership information to FinCEN if the company ceased to exist before reporting requirements went into effect on January 1, 2024?

A company is not required to report its beneficial ownership information to FinCEN if it ceased to exist as a legal entity (i.e., was formally terminated with the Secretary of State) before January 1, 2024. This means that the entity entirely completed the process of formally and irrevocably dissolving (i.e., was formally terminated with the Secretary of State). A company that ceased to exist as a legal entity before the beneficial ownership information reporting requirements became effective January 1, 2024, was never subject to the reporting requirements and thus is not required to report its beneficial ownership information to FinCEN.

Although state or Tribal law may vary, a company typically completes the process of formally and irrevocably dissolving by, for example, filing dissolution paperwork with its jurisdiction of creation or registration, receiving written confirmation of dissolution, paying related taxes or fees, ceasing to conduct any business, and winding up its affairs (e.g., fully liquidating itself and closing all bank accounts).

If a reporting company continued to exist as a legal entity for any period of time on or after January 1, 2024 (i.e., did not entirely complete the process of formally and irrevocably dissolving (i.e., terminating) before January 1, 2024), then it is required to report its beneficial ownership information to FinCEN, even if the company had wound up its affairs and ceased conducting business before January 1, 2024.

Similarly, if a reporting company was created or registered on or after January 1, 2024, and subsequently ceased to exist, then it is required to report its beneficial ownership information to FinCEN—even if it ceased to exist before its initial beneficial ownership information report was due.

A company that is administratively dissolved or suspended—because, for example, it failed to pay a filing fee or comply with certain jurisdictional requirements—generally does not cease to exist as a legal entity unless the dissolution or suspension becomes permanent. Until the dissolution becomes permanent, such a company is required to report its beneficial ownership information to FinCEN.

3. FAQ C. 14. – Reporting Company Status

If a reporting company created or registered in 2024 or later winds up its affairs and ceases to exist before its initial BOI report is due to FinCEN, is the company still required to submit that initial report?

FinCEN stated “Yes.” Reporting companies created or registered in 2024 must report their beneficial ownership information to FinCEN within 90 days of receiving actual or public notice of creation or registration. Reporting companies created or registered in 2025 or later must report their beneficial ownership information to FinCEN within 30 days of receiving actual or public notice of creation or registration. These obligations remain applicable to reporting companies that cease to exist as legal entities—meaning wound up their affairs, ceased conducting business, and entirely completed the process of formally and irrevocably dissolving—before their initial beneficial ownership reports are due.

It bears note that, if a reporting company files an initial beneficial ownership information report and then ceases to exist, then there is no requirement for the reporting company to file an additional report with FinCEN noting that the company has ceased to exist.

4. FAQ D. 17. – Beneficial Owner

Who should an entity fully or partially owned by an Indian Tribe report as its beneficial owner(s)?

An Indian Tribe is not an individual, and thus should not be reported as an entity’s beneficial owner, even if it exercises substantial control over an entity or owns or controls 25 percent or more of the entity’s ownership interests. However, entities in which Tribes have ownership interests may still have to report one or more individuals as beneficial owners in certain circumstances.

Entity Is a Tribal Governmental Authority. An entity is not a reporting company—and thus does not need to report beneficial ownership information at all—if it is a “governmental authority,” meaning an entity that is (1) established under the laws of the United States, an Indian Tribe, a State, or a political subdivision of a State, or under an interstate compact between two or more States, and that (2) exercises governmental authority on behalf of the United States or any such Indian Tribe, State, or political subdivision. This category includes tribally chartered corporations and state-chartered Tribal entities if those corporations or entities exercise governmental authority on a Tribe’s behalf.

Entity’s Ownership Interests Are Controlled or Wholly Owned by a Tribal Governmental Authority. A subsidiary of a Tribal governmental authority is likewise exempt from BOI reporting requirements if its ownership interests are entirely controlled or wholly owned by the Tribal governmental authority.

Entity Is Partially Owned by a Tribe (and Is Not Exempt). A non-exempt entity partially owned by an Indian Tribe should report as beneficial owners all individuals exercising substantial control over it, including individuals who are exercising substantial control on behalf of an Indian Tribe or its governmental authority. The entity should also report any individuals who directly or indirectly own or control at least 25 percent or more of the ownership interests of the reporting company. (However, if any of these individuals own or control these ownership interests exclusively through an exempt entity or a combination of exempt entities, then the reporting company may report the name(s) of the exempt entity or entities in lieu of the individual beneficial owner.)

© Polsinelli PC, Polsinelli LLP in California