Practical Guidance for CTA/FinCEN Compliance

Updated Aug. 30, 2024

Here’s a link to the FinCEN BOI manual: https://fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf. Advisors, you’ll need it to advise your clients.

Here’s a summary of the issue: Many small businesses are supposed to register business and personal information about the company and key persons associated with the company by uploading it to an agency associated with the US Treasury Department. The registration itself is extremely simple; the part that’s a pain is figuring out whether your company is a “reporting company” that’s required to register, and who the “beneficial owners” are who also have to register.

Advisors, if your clients want you to handle their CTA reporting, you are just going to have to dig into the reporting company exceptions and the beneficial owner definitions and go through the steps with your client. There’s no real shortcut to perfunctory compliance. Also, note that constitutional challenges to the CTA are pending in courts, but for now the CTA is applicable law (unless you happen to be a plaintiff covered in Nat’l Small Bus. United, et al. v. Yellen, et al., (N.D. Ala., 5:22-cv-01448-LCB), which you may well be if you were a member of the National Small Business Assn. - an organization with roots in Ohio - before March 1, 2024). But onward with the practical guidance on the law….

This outline will help you figure out your compliance requirements.

1.      Are you a reporting company? If you think of yourself as a “small business” you are probably a reporting company required to register with FinCEN. There are a hodgepodge of exceptions, but if you don’t qualify for an exception you are obligated to register with FinCEN. Here is a summary of the main exceptions:

a.      Not formed by state law filing? Are you an unregistered company like an unincorporated sole proprietorship or a common law general partnership?

                                                      i.      If your entity was not created by registration with the secretary of state, tribe, or other jurisdictional filing, you not a reporting company.

b.      Large Companies: Did you have more than $5 million in revenue last year and have 20 or more full-time employees?

                                                      i.      You aren’t a reporting company under the “large corporation” exemption. If you are a new company, though, you are required to file during your first year, but you may file your exception after you can show that you’ve satisfied the revenue and employer requirements.

c.      Nonprofits. Are you a legit exempt organization?

                                                      i.      Look at the manual. You probably aren’t a reporting company, but you have to have your exemption in place. If you have not secured your exemption determination letter you should file under the CTA until your status changes.

d.      Inactive Businesses. Are you an inactive business?

                                                      i.      Look at the manual. An exempt inactive business has to have been formed before 2020, and meet a few other ownership, transactional, and asset qualifications.

e.      Companies in the Securities Industry. Are you a company involved in the registered securities business? There are a smattering of securities-related exemptions from CTA registration. Look at the manual.

                                                      i.      Accounting Firms. Are you a public accounting company registered under SOX? If you provide auditing services to publicly held companies you are probably registered through the Public Company Accounting Oversight Board, which exempts your company from CTA registration. If you are not registered with the PCAOB for working with public companies, though, you probably are a reporting company.

                                                    ii.      Other securities related business. Look at the manual. You may have to sort through a lot of detailed definitions, but you probably don’t have to report BOI.

2.      If you are a reporting company, determine your individual Beneficial Owners (BOs):

a.      Ownership based BOs. Owners who have 20% or more of any class of interest are beneficial owners. Minors don’t have to register but their trustees and guardians do.

b.      Control based BOs. Senior officer; someone with authority over the appointment or removal of any senior officer or a majority of the board of directors; someone who has makes or has substantial influence over “important decisions” made by the RC; someone who makes such decisions through board representation, has control over a majority of the voting power of the organization, has rights associated with any financing arrangement or interest, controls an entity that controls the company, has any other arrangement, formal or informal, for controlling the company.

c.      Gather the following information on the BOs:

                                                      i.      Full legal name; date of birth; residential address; ID number from passport, drivers license or state ID; foreign passport; and a picture of the actual ID card or document.

d.      What if it’s hard to determine the BOs? It’s especially exasperating to parse the “control” BOs. Read the FinCEN manual, make a good faith determination, and document your reasoning. The point is to avoid a willful failure to file correct information.

3.      If you are a reporting Company formed on January 1, 2024 or later, determine your individual Company Applicants. A company applicant is the individual who files a reporting company’s articles with the state or tribe; and any individual who may be primarily responsible for filing the document if more than one individual is responsible for filing the document.

a.      If your reporting company was formed before January 1, 2024, you are not obliged to file Company Applicant information.

b.      Disclosing CTA information is the obligation of the reporting company, not the Company Applicant. If you are an advisor or outside filer, you are not necessarily obligated to file for the reporting company, but you should provide your information so the company can include it in it’s filing. If you expect to file a lot you can, as a Company Applicant, easily get yourself a FinCEN registration number.

4.      Timing. The filing obligations begin on January 1, 2024 for companies that are formed on or after January 1, 2024; filing must be within 90 calendar days of formation. Companies formed before January 1, 2024 must report by January 1, 2025 — note that companies formed earlier have the later compliance date.

5. Once you have determined your filing obligations, gather the pertinent information and follow the registration steps at the FinCEN website. The site is no-hassle, and the registration process itself will probably only take you a few minutes to upload the information.