CTA BOI (Beneficial Ownership Information) Reporting Updates - Dissolved and Disregarded Entities

The clock continues to tick. This blog article provides some of the latest updates for filing your Business Ownership Information (BOI) reports with the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

Effective Jan. 1, 2024, millions of entities are required to report information to a federal agency about the individuals who ultimately own or control them under the Corporate Transparency Act (CTA). Penalties for non-compliance are stiff, including fines of $591 per day, a potential $10,000 criminal penalty, and up to two years in prison.

If you aren’t aware of BOI reporting requirements, visit FinCEN BOI webpage at https://fincen.gov/boi . You can also find some basic information at https://www.avaralaw.com/beneficial-ownership-information-boi/.

Deadlines

 If your business existed as of January 1, 2024, you must file your BOI report by January 1, 2025.

 If you created your business in 2024, you have 90 days from the date of filing with your state’s Secretary of State to submit your BOI report.

If a reporting company has any updates or changes in the previously filed BOI report, you have 30 days from the date of such changes to file an updated BOI report.

 Entities Required to File

 All limited liability companies (LLCs) and corporations must file. For example, if you own multiple LLCs, each requires a separate BOI report.

 Penalties for Non-compliance

 Failure to file on time can result in significant penalties, including fines of $591 per day, a potential $10,000 criminal penalty, and up to two years in prison.

 Recent Updates from FinCEN

FinCen recently released 6 recent updates, including:

• Clarifying comments on when a corporation or an LLC ceases to exists

• 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 filing requirement

  Companies that ceased to exist before January 1, 2024

  A company is not required to file a BOI report if they ceased to exist as a legal entity before January 1, 2024, meaning that it entirely completed the dissolution process before that date. State or Tribal law vary, but a company typically completes the process of formal and irrevocable dissolution by:

• Filling 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), 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.

  Companies Created and Dissolved in 2024

  If a reporting company was created or registered on or after January 1, 2024, and subsequently ceased to exist, it is required to file BOI with FinCEN, even if it ceased to exist before its initial BOI report was due.

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 - e.g., due to failure to pay a fee or to comply with certain jurisdictional requirements -

generally does not cease to exist as a legal entity unless the dissolution or suspension becomes permanent.

Filing not required for final, “I no longer exist” Report

If a reporting company files an initial BOI report and 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.

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 beneficial ownership information (BOI) to FinCEN if it is a reporting company (see Question C.1). 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 (EIN); a Social Security Number (SSN); or 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 Internal Revenue Service (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 a foreign reporting company 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 limited liability company (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 as its TIN.

As explained above, a disregarded entity that is a reporting company must report one of these tax identification numbers when reporting beneficial ownership information to FinCEN

Updates Caused by Driver’s License and Passport

If a beneficial owner’s unique identifying number came from a U.S. passport, 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. The same applies to a foreign passport.

But a renewed driver’s license which 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.

Conclusion

BOI compliance is not a tax reporting requirement, and it is critical for the business owners of reporting companies to be aware of the requirement. Contact Avara Law, LLC for further guidance and compliance.