UPDATE #2 | APRIL 2024

Court Ruling Narrows Scope of Exemption for BOI Reporting for Small Businesses

In March 2024, the U.S. District Court in Huntsville, AL ruled the CTA is not authorized by the U.S. Constitution. As a result, the understanding was that the new BOI reporting requirements (effective January 1, 2024) were put on hold. However, as the ruling has been clarified, the application of this ruling is more narrow than originally thought.

The plaintiffs in the case, the National Small Business Association and its members (currently numbering around 65,000 businesses of the total 30 million small businesses expected to file for 2024), are currently the only affected parties not required to report beneficial ownership information to FinCEN at this time. This means that all other existing small business and newly formed small businesses need to plan for this during the 2024 year.

UPDATE # 1 | MARCH 2024

Beneficial Ownership Reporting: Pause for Now

A few months ago, we shared a new ruling that would require almost all small businesses to disclose beneficial ownership information by December 31, 2024. Last week, the U.S. District Court in Huntsville, AL, ruled that the Corporate Transparency Act (CTA), the act that initiated that requirement, is not authorized by the Constitution. In light of this update, we recommend holding off on reporting until we learn more.

For more context: The challenge brought before the court said that the CTA exceeded Congress’ constitutional powers and infringed on individual constitutional rights by forcing U.S. business owners to share sensitive, personal information with the Financial Crimes Enforcement Network (FinCEN). The courts have ruled over the years that, in the U.S., activities like entity formation are left up to the individual states. In addition, Congress would be forcing innocent U.S. business owners to hand over information to a database that is dedicated to criminal investigations even though those individuals have done nothing wrong or have given any reason to suspect that they have.

While we wait for more guidance, please ignore unsolicited mail from companies encouraging you to do beneficial ownership reporting through them. This filing can only be done electronically through the FinCEN reporting systems. Kregel & Company is an authorized filer in this system, and our goal is to support each of our business customers in satisfying important business and corporate compliance requirements. We will update you as we learn more about this ruling and its impact on reporting requirements.

Original article:

The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) is creating a comprehensive beneficial ownership registry for U.S. legal entities. The Corporate Transparency Act was passed by Congress in 2021, which requires all U.S. companies created or registered to do business before January 1, 2024, to submit their initial reports by January 1, 2025. Companies created or registered after January 1, 2024, have 90 days to file a beneficial ownership report.

What is Beneficial Ownership Reporting?

“Beneficial ownership” refers to the disclosure of individuals who exhibit control over a company or who play a key role over its decision-making processes. Beneficial ownership reporting is aimed at revealing the true individuals behind a business, as opposed to just the named directors or shareholders.

The goals of this reporting are:

  • Better trace and understand the flow of money
  • Identify potential risks
  • Prevent illicit activities

What Will Need to be Reported

While the actual forms and online reporting system for beneficial ownership interest reporting are not yet available, we expect FinCEN will want reports to include the following.

For the entity:

  • Legal name of the entity
  • Legal address
  • Taxpayer identification number

For each beneficial owner (defined as individuals with more than 25% ownership or substantial control):

  • Names
  • Birthdates
  • Addresses
  • Identifying information from official documents (e.g., U.S. passport or state driver’s license number)

Reporting and Access to Information

Annual reporting will be done via FinCEN electronic reporting. This is similar to foreign bank account reporting requirements.

Concerns around the security and confidentiality of your company’s information is valid. FinCEN restricts access to authorized individuals, federal and state law enforcement, national security agencies, and certain financial institutions.

All legal business entities (e.g., LLCs, corporations, S corporations) will be required to file individual reports during 2025. There are a few exceptions. For example, large operating companies with over 20 full-time employees, $5 million in gross receipts, and a physical U.S. office presence will be exempt from reporting. Publicly traded companies and other highly regulated industries, such as insurance, accounting firms, investment advisors, and financial institutions, will also be exempt.

Reporting must be done on an annual basis. Penalties for non-compliance are up to $500 per day, with a maximum of $10,000 per reporting entity.

Whenever the information submitted changes, an updated report must be filed with 30 days of the change.

Next Steps and How We Can Help

At this point, the online reporting platform is not yet available. During 2024, we will learn more of the reporting requirements and specific timing for you. You can familiarize yourself with this reporting requirement here and here.

As always, we are here to support your back-office planning and reporting. We will be able to help with this reporting outside of our regular, ongoing arrangements with you. Look for additional from our team as we learn more.

If you have any questions in the meantime, feel free to contact us.