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What Do I Do As A Newly Exempt Entity Under BOI Rule?

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How To Respond as a Newly Exempt Entity Under BOI Rule

If a company has previously filed a Beneficial Ownership Information Report (BOIR) under the Corporate Transparency Act (CTA) and subsequently undergoes structural or ownership changes that grant it an exempt status, it is no longer mandated to submit updates to FinCEN. However, simply ceasing updates is not the first step if your company becomes exempt; certain measures must be taken in light of this new status.

Understanding BOIR

exempt entity under boi rule - secure complianceThe Beneficial Ownership Information Report (BOIR) is a critical reporting requirement created under the CTA, and which triggers filing requirements beginning January 1, 2024. These disclosure rules mandate that certain entities disclose information about their beneficial owners and potentially their company applicants as well to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury. These reporting companies must also report any changes in beneficial owner information within 30 days of the change occurring. 

What to Do If Your Company Becomes Exempt

If your company becomes exempt from filing a BOIR after having previously submitted a report, several steps should be taken to ensure compliance: 

  1. Consult with legal counsel or regulatory authorities to confirm that your company meets the criteria for exemption under the BOI rule.
  2. Once it is determined that your company is exempt, you must report to FinCEN that your company is “newly-exempt” by selecting the applicable box on a new BOIR. Other information to be provided on this final report includes the FinCEN Identifier that was assigned from the initial report or legal name, tax ID type, tax ID number, and country/state of jurisdiction of the newly-exempt entity. This information will be used to tie the report to the previous filing.
  3. Retain all records and documentation related to your previous BOIR filings, as these may be needed for audits or inquiries in the future.
  4. Continue to seek advice from legal and financial professionals to stay informed about any changes in regulatory requirements that may affect your company and its exemption status. 

Are Your Prepared for the CTA? 

If your company becomes exempt from filing a BOIR after previously reporting, it is important to confirm your exemption status, file a new BOIR, retain records, and stay informed about ongoing compliance obligations. Remaining vigilant and proactive in your approach to regulatory compliance is key to navigating the evolving landscape of corporate transparency and financial regulation.

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Who Can Access the BOI Database? – FinCEN FAQs Provide Insight

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Who Can Access the BOI Database?

As part of ongoing efforts to enhance financial transparency and combat illicit activities, the Financial Crimes Enforcement Network (FinCEN) issued new FAQs on April 18, 2024, focusing on the access protocols for the Beneficial Ownership Information (BOI) System (BO IT System). This database is integral to the implementation of the Corporate Transparency Act (CTA), as it stores all data collected through Beneficial Ownership Information Reports (BOIRs). The question stands: who can access the BOI database? 

While this information is not directly accessible to the public, understanding who can access yours and your clients information and how they can use it is important to know. The FAQs provide detailed insights into authorized recipients and the phased access plan, including specific requirements for different types of agencies, and how these entities should prepare to use the BO IT System effectively.

Detailed Phased Access to Beneficial Ownership Information

FinCEN’s strategic phased approach aims to ensure a secure and controlled rollout of BOI access: 

Spring 2024 – Pilot Program Initiation:

Select Federal agency users will begin accessing the BO IT System under a pilot scheme, marking the first phase of the access rollout. Summer 2024 – Expansion to Federal Agencies: Access will be granted to Treasury offices and other Federal agencies actively involved in law enforcement and national security, all of which are already parties to memoranda of understanding with FinCEN related to the Bank Secrecy Act information. 

who can access the boi database - secure complianceFall 2024 – Inclusion of State and Local Entities:

This phase will extend BOI access to additional Federal agencies and introduce State, local, and Tribal law enforcement agencies into the system, contingent upon establishing required memoranda of understanding. 

Winter 2024 – Facilitating Foreign Requests:

Intermediary Federal agencies will receive access to handle and process requests for BOI from foreign governments, enhancing international cooperation. Spring 2025 – Access for Financial Institutions: Financial institutions that are subject to customer due diligence requirements will gain access to the system, aiding in regulatory compliance and risk management.

Procedures for Requesting Access to BOI

For Federal Agencies

Federal entities involved with national security, intelligence, or law enforcement can request access to the BO IT System by: 

State, Local, and Tribal Agencies

These agencies are eligible for BOI access under certain conditions for use in investigations or enforcement actions: 

  • Authorization must be granted by a court of competent jurisdiction.
  • They must have a memorandum of understanding with FinCEN that specifies their information security and confidentiality safeguards. State regulatory agencies overseeing financial institutions for compliance with customer due diligence standards might also seek beneficial ownership information from FinCEN to aid their supervisory duties. Similar to other domestic government bodies, these state agencies must enter into a memorandum to access beneficial ownership information from FinCEN.

International Access Via Intermediary Federal Agencies

While foreign governments cannot directly access the BO IT System, they can request BOI through U.S. Federal intermediaries if: 

  • The request complies with existing international treaties, agreements, or conventions.
  • For countries without such treaties, requests must be made through recognized foreign judicial or law enforcement authorities, as verified by FinCEN and other relevant U.S. entities.

Are You Prepared to Handle BOI Reporting?

Another FAQ covered what steps authorized recipients should take to secure and manage BOI appropriately, ensuring that your data is in good hands:

1. Security Protocols and Confidentiality:

  • Develop and enforce strong security practices to protect BOI.
  • Regularly submit certifications and detailed reports to FinCEN to demonstrate adherence to these practices.

2. System and Audit Requirements:

  • Implement a secure system for BOI storage that satisfies FinCEN’s standards.
  • Keep auditable records of all BOI requests and their justifications.
  • Conduct internal and cooperate with FinCEN’s annual audits to ensure proper use of the information.
  •  

The newly issued FAQs by FinCEN on April 18, 2024, clarify the access strategy and operational requirements for using the BO IT System, ensuring that all authorized recipients are well-prepared to handle Beneficial Ownership Information responsibly and securely. While the direct application of this information might not pertain to you, it is great information to know in case clients wonder what their reports are being used for and by who.

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CTA Reporting for HOAs – FAQs Provide Insight

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What Does CTA Reporting for HOAs Involve?

As the deadline approaches for compliance with the Corporate Transparency Act (CTA), Homeowners Associations (HOAs) across the United States must evaluate their structures to determine their obligations under the new reporting requirements. 
 
Having taken effect January 1, 2024, understanding whether your HOA meets the definition of a reporting company and identifying the beneficial owners are critical for accurate and timely compliance.
 
On April 18th, 2024, the Financial Crimes Enforcement Network (FinCEN), who is tasked with collecting and analyzing this information, issued new FAQs that clarify obligations for HOAs – let’s dive in.

Do Homeowners Associations Need to File BOI Reports?

The classification of an HOA as a reporting company under the CTA depends primarily on the process of its formation and whether or not it meets the definition of an exempt entity. 

Here’s a straightforward breakdown:
 

  • Incorporation Status: If an HOA was established by filing a document with a secretary of state or similar office, it is considered a domestic reporting company and may need to comply with CTA reporting requirements. Examples include incorporated HOAs and other similar entities.
  • Exemptions: Certain HOAs may qualify for exemptions from the reporting requirements. For instance, HOAs that are designated as 501(c)(4) social welfare organizations are considered tax-exempt entities and are thus exempt from these requirements.

Who is the Beneficial Owner of a Homeowners Association?

fincen for hoas - secure complianceIdentifying the beneficial owner(s) of an HOA that qualifies as a reporting company is essential for compliance with the CTA. The criteria for determining a beneficial owner include:
 

  • Substantial Control: The individual must exercise significant control over the association. This can be through direct actions or by controlling significant aspects of the HOA’s operations and decisions.
  • Ownership Interests: Individuals who own or control at least 25 percent of the ownership interests in the HOA.

 
In many cases, no single individual meets the 25 percent control criterion due to the distributed nature of ownership in most HOAs.
 
However, FinCEN expects that there will always be at least one person who holds substantial control over the association. This could be a senior officer, a person with the power to appoint or remove officers or directors, a key decision-maker, or anyone who holds significant influence within the HOA.

Key Takeaways for HOAs

  • Check Incorporation: HOAs must first verify if their filings with a state resulted in there formation/incorporation as an entity.
  • Identify Beneficial Owners: HOAs that are reporting companies need to identify any individuals who either control at least 25% of the entity or have substantial control as defined under CTA guidelines.
  • File Reports on Time: Reporting companies established before January 1, 2024, must file their initial BOI report with FinCEN by the end of 2024. Late filings can result in penalties or other legal consequences. Those formed in 2024 have 90 days from formation, and those created in 2025 and on will have 30 days.

 
The introduction of the CTA represents a significant shift in how business entities, including HOAs, are regulated in terms of transparency and financial disclosures.
 
HOAs must take proactive steps to ensure compliance to avoid potential legal and financial penalties. With January 1, 2025, just around the corner, it is imperative for HOAs to assess their obligations under the CTA thoroughly and take necessary actions.

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BOI Updating Requirements: When to Provide an Updated BOI Report

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BOI Updating Requirements

With the introduction of the Corporate Transparency Act (CTA), the importance of maintaining current Beneficial Ownership Information (BOI) reports has never been more critical. As an estimated 1.5 million “initial reports” have already been filed, entities must now ensure that their records are meticulously kept up-to-date so that subsequent “updated reports” will be filed with FinCEN. This necessitates not only informing clients about what specific changes trigger the need for a filing but also establishing robust internal processes to guarantee these updates are submitted on time. With this in mind, what are the BOI updating requirements? 

Updates must be filed within 30 days of any relevant change, covering everything from shifts in ownership percentages to alterations in corporate structure or beneficial owner details. Below are some examples of what may cause a reporting company to file an updated report.

Changes in Company Information

boi updating requirements - secure complianceA fundamental trigger for an updated BOI report (BOIR) is any change to the information related to the reporting company itself. These changes can include: 

  1. Registering a new trade or doing-business-as name: If a company decides to operate under a new name, this must be accurately reflected in an updated BOI report.
  2. Changes in company structure: Modifications to the legal structure, mergers, or other corporate events that affect the company’s ownership and management structure need to be reported.
  3. Contact information changes: Updated addresses or contact details should be promptly reflected in the report to ensure that regulatory authorities can reach the company when necessary.

Alterations in Beneficial Ownership

The heart of a BOI report lies in its disclosure of beneficial owners – the individuals or entities that own or control a significant portion (25% or more) of the business. The following scenarios can trigger the need for an updated BOI report: 

  1. Appointment of new beneficial owners: When a new individual or entity acquires or assumes control of a substantial portion of the business, they must be accurately documented.
  2. Change in ownership structure: The sale of shares or assets that results in a change in ownership structure, especially if it involves someone reaching or surpassing the 25 percent ownership interest threshold, requires an updated report.
  3. Departure or resignation of a beneficial owner: If a beneficial owner leaves the company or resigns from their position of significant control, this change must be reported.
  4. Death of a beneficial owner or inheritance of ownership interest: When a beneficial owner passes away, the updated report will need to exclude the owner and replace (if applicable) with any new beneficial owners that result from the change. Those who have ownership interest solely through the right of inheritance are one of the 5 exceptions to the definition of a beneficial owner, however, once they do inherit the interest an update must be filed to report the new owner.

Modifications in Beneficial Owner Information

Individuals or entities identified as beneficial owners in a BOI report are required to provide specific information. Changes in this information trigger the need for an update, such as: 

  1. Change of name: If a beneficial owner obtains a new legal name, it should be promptly reflected in the report.
  2. Address updates: Alterations in a beneficial owner’s address should be accurately documented in the report.
  3. Unique identifying numbers: Any changes to unique identifying numbers, such as passport or driver’s license information, need to be updated to maintain accuracy. Along with this, companies may need to provide an image of the updated identifying document, further ensuring the authenticity of the changes.

 It’s essential to understand that obtaining FinCEN Identifiers (FinCEN IDs) can streamline the reporting process and potentially eliminate the need for updated reports for the changes listed above. When individuals register for a FinCEN ID through their login.gov account, they directly submit their personal information to FinCEN. This ID can then be included in the entity’s BOIR. Consequently, if there is a change in the individual’s personal details, they simply update their information via their login.gov account. Since the FinCEN ID connects the owner to the entity and FinCEN maintains their current details independently, the entity itself is not required to file an updated report for these kinds of changes.

When to Provide a Corrected BOI Report

If the information in a report about beneficial ownership is found to be inaccurate, your company is required to rectify it within 30 days of becoming aware of the inaccuracies or having reason to know about them. This correction pertains to any inaccuracies in the mandatory details concerning your company, its beneficial owners, or its applicants.

The Importance of Timely Updates

Failing to update a BOI report within 30 days of the change (there is a proposed extension to 90 days for 2024 only) can result in compliance issues, financial penalties, and legal consequences. To ensure that businesses operate within the bounds of the law, it is essential to stay vigilant and promptly respond to triggers that necessitate an updated BOI report.

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