The Corporate Transparency Act and Beneficial Reporting Requirements: What’s New in the New Year
By Michael Sottolano and Anna Mancino
Starting January 1st, 2024, the Beneficial Owner Information (“BOI”) Reporting requirements went into effect for corporations. Many community associations, as corporate entities, are subject to the BOI Reporting requirements and over the past few weeks, the Financial Crimes Enforcement Network (FinCEN”) released guidance to navigate this inaugural year. This article summarizes the latest changes to the BOI Reporting requirements to help you file your BOI report in the coming months.
Breaking Down the BOI Reports
FinCEN has increased the amount of information included in BOI reports. While these increases are daunting, there are some exemptions that should decrease the informational load on associations generally.
We know that an individual is a beneficial owner if they exercise “substantial control” over a reporting company. In the recent guidance, the definition of substantial control has been expanded to include “important decision makers” of the reporting company. Important decision makers exercise control over the reporting company’s 1) business, 2) finances, and/or 3) structure.
There is also a category of to-be reported individuals: company applicants. A company applicant is an individual who is 1) a direct filer, who directly (physically or electronically) filed the document that created or registered a reporting company or 2) an indirect filer, who directs or controls the filing of the creation or registration documents. These filers are not the individuals who file the BOI report. Unlike beneficial owners, company applicants cannot be removed from the BOI report, even if they are no longer associated with the company after the report is submitted. And, also unlike beneficial owners, companies do not need to update BOI reports with informational changes for company applicants.
Every new reporting company created after January 1, 2024 will report at least one company applicant and have no more than two (2) company applicants, if more than one individual was involved in that filing process. Much like for beneficial owners, the categorization of who is a company applicant is broad. For example, third-party courier service providers may be considered company applicants if they are employed by a business formation service, law firm, or other business that is involved in the creation or registration of the reporting company.
Despite their categorial differences, company applicants and beneficial owners must provide the same information. Individuals must still submit their full legal name, birth date, complete current address, and information specific to an identification document like a U.S. passport or a state driver’s license. An individual’s residential street address must be used, unless the individual is a company applicant who forms companies in the course of their business. In those instances, the individuals must report their business address. To accommodate individuals who do not have identification photos on their I.D.s for religious reasons, companies can submit identification documents without the individual’s photograph.
Companies also do not have to report the reason why each individual is a beneficial owner.
Employees are the Exception
In the community association context, managers play an important role in the day-to-day running of an association. These individuals can be involved in important decisions made regarding the communities they manage; could their level of involvement make them beneficial owners who must report their information as well? Based on FinCEN’s guidance, managers who are employed by an association may not have to report their information because they likely fall into the employee exemption. An individual is considered to be an exempt employee if they 1) are subject to the will and control of the employer in what and how they do their work, 2) may be discharged by the employer, 3) economically benefit from, or exercise substantial control over, the company due to their employment status, and 4) are not a senior officer (such as a president, chief financial officer, or general counsel). Whether a community manager can or would fall within the aforementioned exemption should be evaluated on a case-by-case basis depending on their role and responsibilities and the facts and circumstances of the management relationship.
New Deadlines for Filing
New filing deadlines have been established for entities created in this inaugural period. If a company is created on or after January 1, 2024, but before January 1, 2025, the company has ninety (90) calendar days to file their BOI report after receiving actual or public notice that the company’s creation or registration is effective, whichever is earlier. If a company is created or registered on or after January 1, 2025, the company must file their BOI report within thirty (30) calendar days after the earlier of the actual or public notice.
There is no fee for submitting the BOI report. Reporting companies may file their report themselves at https://boiefiling.fincen.gov and can authorize a third party to file on its behalf. The filing application will provide the reporter with acknowledgement of submission success or submission failure and the reporter will be able to download a transcript of the BOI report. If a third party files the company’s report, the company will have to obtain the acknowledgement and transcript from the third party filer.
For changes to BOI reports, there are slightly different deadlines to correct or change the reported information. Companies can file a corrected BOI report within ninety (90) calendar days of when the report was filed, without facing penalties. Changes, on the other hand, must be reported within thirty (30) calendar days after the date of the change. In the case of the death of a beneficial owner, the changes must be reported within thirty (30) days of when the deceased beneficial owner’s estate is settled and identify any new beneficial owners. If the ownership of a reporting company is the subject of active litigation at the time of filing an initial report, the company must list all beneficial owners of the company, including those in dispute. Within thirty (30) calendar days of the resolution of the litigation, the company must file an updated BOI report with all the remaining beneficial owners, if there was such a change as a result of the litigation.
To update a BOI report, a new BOI report must be submitted. Even if there is only one change that needs to be made, all fields of the BOI report must be resubmitted with the updated information. There is a fillable PDF version of the BOI report application on FinCEN’s site, which can be saved and reused. To assist in future filings associations should consider saving a copy of each fillable PDF submitted so preparation of future reports is easier and (hopefully) less time-consuming.
Conclusion
While BOI reporting is daunting, it is manageable with good record keeping and attention to detail. When compiling your BOI application, ensure that the information is saved in an easily accessible and clearly organized manner, for future BOI reports. When the BOI report is submitted, make sure that the association has the acknowledgement of submission, the copy of the report submitted, and any additional paperwork related to the submission process for the association’s records.
If you have any questions about the updates to the BOI reporting requirements and its effect on your association, please do not hesitate to contact your attorneys at Chadwick, Washington, Moriarty, Elmore & Bunn, P.C.