New for 2024: Beneficial Ownership Information Reporting Requirements for Small Businesses
Effective January 1, 2024, new rules mandate certain business entities to report beneficial ownership information to the US Department of Treasury.
The Corporate Transparency Act (“CTA”), enacted as part of the National Defense Act for Fiscal Year 2021, requires the disclosure of beneficial ownership information (“BOI”) for entities from individuals owning or controlling them.
Approximately 32.6 million businesses must comply with this reporting requirement. The purpose is to aid US law enforcement in combating money laundering, terrorism financing, and other illicit activities. There is no associated fee for filing.
Entities Required to Comply:
Companies subject to reporting include corporations, limited liability companies (LLCs), or similar entities formed by filing documents with a secretary of state or similar office. Entities not formed through such filings are exempt.
Exemptions:
There are 23 categories of exemptions, including publicly traded companies, banks, credit unions, securities broker/dealers, certain public accounting firms, tax-exempt entities, and inactive entities. Note that these exemptions are not blanket, and many regulated entities already disclose their BOI to the government.
Certain “large operating entities” are also exempt, meeting criteria such as employing over 20 people in the U.S., reporting US-source gross revenue over $5 million, and being physically present in the U.S.
Filing Deadlines:
Existing entities formed before 2024: Must file by January 1, 2025.
Entities formed/registered in 2024: Must file within 90 days of formation (e.g., by March 30, 2024, if formed on January 1, 2024).
Entities formed after 2024: Must file within 30 days of formation.
Companies with changes or inaccuracies: Must file within 30 days.
Information Required:
For the reporting company: Full name, business address, state/Tribal jurisdiction of formation, and IRS taxpayer identification number (TIN).
For beneficial owners and company applicants: Name, birthdate, address, unique identifying number from an acceptable ID document, and an image of the document.
Definition of Beneficial Owner:
An individual who, directly or indirectly, owns or controls at least 25 percent of the ownership interests of a reporting company or exercises “substantial control” over it. "Substantial control" includes directing, determining, or influencing important decisions.
Penalties for Noncompliance:
Willful noncompliance may result in criminal and civil penalties, up to $500 per day and a maximum of $10,000, along with two years of jail time.
Preparation of BOI Reports:
The CTA falls under the Bank Secrecy Act, not the tax code. Reports are not filed with the IRS but with the Financial Crimes Enforcement Network (FinCEN). Whether CPAs can prepare these reports without engaging in the unauthorized practice of law is currently unclear.
We recommend that you plan to prepare and file this report if it applies to you.
Filing Process:
Reports must be submitted electronically through the FinCEN website:
The website provides additional guidance and reference materials.
Update on Proposed Federal Tax Legislation
On January 16, top lawmakers on the Senate and House tax writing committees announced a deal on a bipartisan “tax framework.” This legislation, the Tax Relief for American Families and Workers Act of 2024, aims to provide tax relief for businesses and individuals.
Key provisions include restoring expensing for US-based R&D investments, extending EBITDA-based business interest limitations, expanding Section 179 small business expensing, maintaining 100% bonus depreciation through 2025, and expanding child tax credits. Some provisions would be retroactive to 2023 and 2022. The estimated cost is offset by expediting the deadline for COVID-Employee Retention Credit (ERC) claims to January 31, 2024.
It is unclear whether there is sufficient support in Congress to pass this legislation. We will update you with details if the legislation becomes law.