Beneficial Ownership Information: Who is Required to Report?

Earlier this year, Farm Credit East held a webinar reviewing The Corporate Transparency Act and the new Beneficial Ownership Information (BOI) reporting requirements that went into effect on January 1, 2024. Several webinar attendees asked questions about how these requirements apply to different business structures. Understanding our webinar attendees aren’t the only ones with these questions, we’re providing a recap here. To review the full recording from the webinar held in June, click here.

Who is required to report BOI information?

A business subject to the BOI reporting rules is called a “reporting company.” A reporting company will fall into one of two categories:

• Domestic Reporting Company: A business entity that is a Corporation, Limited Liability Company (LLC), or was otherwise created in the U.S. by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe.

• Foreign Reporting Company: A foreign business entity registered to do business in any U.S. state or Indian tribe by such a filing.

View this previous blog article for more information on who is required to report BOI information.

Who is exempt from BOI reporting?

Under the Corporate Transparency Act, there are specific exemptions from Beneficial Ownership Information (BOI) reporting requirements. Most exemptions are for entities that operate in an industry that is already heavily regulated by Federal or state authorities. Key exemptions include:

1. Large Operating Companies: Companies with over 20 full-time employees, a U.S. office and more than $5 million in gross receipts.
2. Inactive Entities: Entities that existed before January 1, 2020, are inactive, have U.S. ownership and conduct limited transactions.
3. Banks, credit unions and holding companies: Entities that meet federal banking definitions or federal credit union criteria and/or savings and loan holding companies.
4. Money Transmitter Businesses: Entities registered with FinCEN.
5. Securities Brokers/Dealers/Exchanges/Clearing Agencies: Entities registered under the Securities Exchange Act.
6. Investment Companies/Advisers: Entities documented with the SEC.
7. Insurance Companies: Entities defined under the Investment Company Act of 1940.
8. Public Accounting Firms: Entities registered under the Sarbanes-Oxley Act of 2002.
9. Public Utilities: Regulated public utilities offering specific U.S. services.
10. Tax-Exempt Entities: Entities that fit IRS Code sections or are trusts described in specific sections.

View this previous blog article for more information on BOI reporting exemptions, including some exemptions specific to agriculture.

Who is a Beneficial Owner?

A beneficial owner is an individual with substantial control or ownership (at least 25%) of the entity.

Are trusts required to report? 

There are two types of trusts – revocable and irrevocable. How they function and who has different rights to those assets and income can all be very different.

To determine beneficial owners and if you’re required to report requires critical analysis based of your facts and circumstances, which includes how the entity was formed and the governing instrument for that trust.

Attorneys can offer sound advice during that estate probate period when you are trying to figure out what's required to be filed such as wills, trust documents, BOI updates, transferring titles, etc. This will become another part of the totality of wrapping up estates, particularly if trusts are created during that time.

What is the definition of an inactive LLC?

Inactive entities are essentially what they sound like, but the important criteria is that there are no bank transactions through it. It's not enough to say, maybe one of these rental companies is a triple net lease, so what comes in goes out. Not having net profit doesn't mean you're inactive.

It really means you've conducted no business in the United States, and if anything did go through a bank account, there are no transactions in the last 12 months.

Do 1099 employees count towards the 20-employee level for a large company?

Employees who are full-time, meaning they work at least 30 hours a week, must be counted. Contractors are not counted as employees.

How are seasonal employees figured?

From the FinCEN guidance that's been released, this is annualized. So, only employees with 30 hours of service per week on an annual basis should be counted.