What Is This New Small Business Filing?

The Corporate Transparency Act (CTA) enacted in 2021 adds this entirely new 2024 online federal filing requirement when most small business corporations and LLCs file with their secretaries of state.

Under this requirement, you file the following two reports at the same time with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN):

• A “beneficial owner” information report (BOI report)
• A company applicant information report

Key point. This new federal filing is totally separate from state and local filings. From now on, determining whether this filing is required, and completing it within the deadline, must become a routine part of forming most new corporations and LLCs.

How many new small businesses are we talking about? FinCEN estimates about 5 million new small businesses are formed each year that will have to comply with the CTA!

The clock continues to tick, and time is getting shorter on the need to file your Business Ownership Information (BOI) reports with the U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN).

• If your reporting business existed on January 1, 2024, you must file on or before January 1, 2025.
• If you create a new reporting business in 2024, you have 90 days from the date you filed with your state’s secretary of state.

Remember, you need to file for all your limited liability companies (LLCs) and corporations. Thus, if you have five rental properties all owned in separate LLCs, then you have five BOI reports to file.

Don’t forget that the penalties for failure to file can be huge. For example, for each day you are late, the penalty is $591. Then, you could also face an additional $10,000 criminal penalty and up to two years in prison.

In this article, you will find seven insights, six of which are recent updates from FinCEN, including:

• Clarifying comments on when a corporation or an LLC ceases to exist
• What taxpayer IDs you can use for LLCs that are acceptable to FinCEN
• When a new passport or driver’s license triggers the 30-day update requirement

1. Company Ceased to Exist Before January 1, 2024

A company is not required to report its BOI to FinCEN if it ceased to exist as a legal entity before January 1, 2024, meaning that it entirely completed the process of formally and irrevocably dissolving.

 Although state or Tribal law may vary, a company typically completes the process of formally and irrevocably dissolving by:

• 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 before January 1, 2024), then it is required to report its BOI to FinCEN, even if the company had wound up its affairs and ceased conducting business before January 1, 2024.

2. Company Created and Dissolved in 2024

 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 BOI to FinCEN—even if it ceased to exist before its initial BOI report was due.

3. Failure Does Not Equal Dissolution

For specifics on how to determine when a company ceases to exist as a legal entity, consult the law of the jurisdiction in which the company was created or registered. 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.

4. No Need to File an “I Exist No Longer”

Report If a reporting company files an initial BOI report and then ceases to exist, there is no requirement for the reporting company to file an additional report with FinCEN noting that the company has ceased to exist.

 Key point. This is not logical, but it is the rule.

5. Tax ID for a Disregarded Entity

 An entity that is disregarded for U.S. tax purposes—a “disregarded entity”—is not treated as an entity separate from its owner for U.S. tax purposes. Instead of a disregarded entity being taxed separately, the entity’s owner reports the entity’s income and deductions as part of the owner’s federal tax return.

 A disregarded entity must report BOI to FinCEN if it is a reporting company. Such a reporting company must provide one of the following types of taxpayer identification numbers (TINs) on its BOI report if it has been issued a TIN:

• An Employer Identification Number
• A Social Security Number
• An Individual Taxpayer Identification Number (ITIN)

 If a foreign reporting company has not been issued a TIN, it must provide a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

 Consistent with rules of the IRS regarding the use of TINs, different types of tax identification numbers may be reported for disregarded entities under different circumstances:

• If the disregarded entity has its own EIN, it may report that EIN as its TIN.
• If the disregarded entity does not have an EIN, it is not required to obtain one to meet its BOI reporting requirements so long as it can instead provide another type of TIN (or, if it’s a foreign reporting company that was not issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction).
• If the disregarded entity is a single-member LLC or otherwise has only one owner that is an individual with an SSN or ITIN, the disregarded entity may report that individual’s SSN or ITIN as its TIN.
• If the disregarded entity is owned by a U.S. entity that has an EIN, the disregarded entity may report that other entity’s EIN as its TIN.
• If the disregarded entity is owned by another disregarded entity or a chain of disregarded entities, the disregarded entity may report the TIN of the first owner up the chain of disregarded entities that has a TIN

6. Quick Taxpayer ID

A reporting company must provide one of the following types of taxpayer identification numbers on its BOI report if it has been issued a TIN:

• An Employer Identification Number
• A Social Security Number
• An Individual Taxpayer Identification Number

If a foreign reporting company has not been issued a TIN, it must provide a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

The IRS offers a free online application for an EIN, which is provided immediately upon submission of the application. For more information, see Taxpayer Identification Numbers (TIN).

Most reporting companies should be able to use the EIN online application to apply for their EIN. However, there may be situations where a reporting company needs to file a Form SS-4, Application for Employer Identification Number, to obtain an EIN.

For Forms SS-4 submitted by fax, applicants should generally receive their EIN in four business days. For Forms SS-4 submitted by mail, applicants should receive their EIN in four to five weeks. However, in some circumstances, it may take six to eight weeks to receive an EIN. Thus, in some limited circumstances, a reporting company with no other tax identification number may not be able to obtain its EIN by its BOI report filing deadline.

A reporting company must report its tax identification number when reporting BOI to FinCEN and, indeed, will be unable to submit its BOI report without including a TIN.

 In such circumstances, in addition to making all reasonable efforts to file its BOI report in a timely manner (including requesting all necessary information as early as practicable), the reporting company should file its report as soon as it receives its EIN.

As a best practice, the reporting company may consider retaining documentation associated with its efforts to comply with the BOI reporting requirements in a timely manner.

7. Updates Caused by Driver’s License and Passport

If a beneficial owner’s unique identifying number came from a U.S. passport, then that number will change when the passport is renewed, which will trigger the 30-day requirement to submit an updated report including the new passport number and an image of the new passport.

 But a renewed driver’s license generally does not contain a new driver’s license number, so that new license with no changes other than its expiration date does not create an updating event.

Takeaways

 For companies that ceased to exist before January 1, 2024, there is no requirement to report BOI to FinCEN, provided the dissolution process was fully completed before that date.

Companies that existed or were created on or after January 1, 2024, must report their BOI, even if they ceased to exist before their initial report was due.

It’s crucial to understand that failure to meet jurisdictional requirements does not equate to dissolution unless the dissolution or suspension becomes permanent.

Disregarded entities for tax purposes need to report BOI using an appropriate TIN. Companies should ensure timely BOI reporting, especially when TINs or unique identification numbers change, to avoid penalties and ensure compliance with FinCEN regulations.