The landscape of Corporate Transparency Act beneficial ownership information reporting continues to evolve, and accountants and others who advise their small business clients need to stay ahead of the curve.
The new FAQs reiterate the potential consequences of neglecting BOI reporting obligations. Civil penalties — which are annually adjusted for inflation — can reach up to $591 per day, while criminal penalties include imprisonment and hefty fines.
What about the NSBA ruling?
Yes, for the time being BOI reporting is suspended for the 60,000 or so National Small Business Association members. In case you missed it, the
However, FinCEN has said
HOAs on notice: Reporting likely required
While the answer to the question, "Are homeowners associations considered reporting companies and required to file BOI reports?" is still "It depends," the April 18 update has helped clarify the path to yes or no.
According to the update, most HOAs incorporated or created by filing a document with a secretary of state or similar office may fall under the definition of "reporting companies" and, therefore, must report BOI information.
Exemptions are limited and specific. According to the new FAQ, only unincorporated HOAs or those designated as social welfare organizations under IRC 501(c)(4) may be exempt.
With the Jan. 1, 2025 deadline for pre-2024 associations looming, it's time for action. Homeowners associations formed in 2024 must take particular note since, unlike their pre-2024 colleagues, they only have 90 days from their formation date to file.
To avoid year-end congestion and stress, many advisors are encouraging their pre-2024 business clients to file their initial BOI reports early, ideally in the next few months.
S corps aren't exempt based on structure type
Under this update, the FAQs clarify that any S corporation that qualifies as a reporting company — and is not otherwise exempt from reporting — must comply with BOI reporting requirements. The S corp pass-through structure for tax purposes does not affect reporting obligations or make it a "tax-exempt entity" under FinCEN BOI reporting regulations.
Entities losing their exempt status in 2024 get a glimpse of relief
The new FAQs include some breathing room for certain companies that lose their exempt status between now and Jan. 1, 2025.
Companies created before Jan. 1, 2024, that lose their exempt status during 2024 have an extended deadline to file their initial BOI report: Jan. 1, 2025, or 30 calendar days after losing their exempt status, whichever is later.
The FAQs provide this example: If an existing reporting company ceases to be exempt on Feb. 1, 2024, it will have until Jan. 1, 2025, to file its initial BOI report. If it ceases to be exempt on Dec. 15, 2024, it will have until Jan. 14, 2025, to file its initial BOI report.
BOI database: Who gets access and when?
The wait for accessing the BOI database continues for some stakeholders. FinCEN plans a phased approach throughout 2024 and into 2025. Here's a breakdown of the expected phases and who is expected to get access:
- Phase 1: Spring 2024. A "handful" of federal agency users kick-start access since Phase 1 is a pilot program.
- Phase 2: Summer 2024. Treasury offices and other federal agencies involved in law enforcement and national security who already have memoranda of understanding for access to Bank Secrecy Act information are allowed in.
- Phase 3: Fall 2024. The net widens to additional federal agencies engaged in law enforcement, national security, and intelligence activities, as well as state, local and tribal law enforcement partners.
- Phase 4: Winter 2024. Intermediary federal agencies involved in processing foreign government requests get access.
- Spring 2025. Financial institutions get access, subject to customer due diligence requirements under applicable law.
Currently, no other governmental entity, organization, business or individual has access to the BOI database, despite our being almost four months into populating the database.
A word on the IRS and BOI access
While not mentioned in the new FAQs — or elsewhere — as part of the U.S. Treasury Department, it's not unlikely that the IRS could be granted access to BOI information, especially during criminal investigations.
Expect additional guidance from the Treasury regarding under what circumstances and to what extent FinCEN would grant the IRS access to BOI information.
New FAQs provide some clarity, but expect more guidance
While the new FAQs answer some important questions, many lingering concerns remain. One ongoing issue the new FAQs don't address is the critical need to educate the tens of millions of entities obligated to report under the Corporate Transparency Act.
As to the NSBA and other cases challenging the constitutionality of the CTA, many experts believe one of two outcomes will occur: The courts will ultimately find the CTA constitutional, or Congress will amend the law to eliminate the issues that could lead to a finding that it is unconstitutional.
As we carefully watch the journey these cases take through the court system, we can expect continuing FinCEN guidance through the balance of the year and beyond.
