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Beneficial Ownership Information: Is your company in the clear?

Jason Dickstein explores Beneficial Ownership Information (BOI) reporting and what aviation businesses need to know.

Does the US federal government know who owns your company? If your answer is “no” then you may need to file information with the government to make sure they do!

The Corporate Transparency Act (CTA) was passed in 2021 as part of the US efforts to better manage corporate shells. The CTA requires many businesses in the US to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).

This article explores the implications of the CTA for aviation businesses, highlights key exemptions and delves into the government’s intended use of the collected data.

Summary of obligations

To comply with the CTA, you simply need to go online (https://boiefiling. fincen.gov/fileboir) and answer some questions about your business.

The information requested is focused on the beneficial ownership of the business, so make sure you are clear on this before you file the information. If you are not sure, you can download a PDF Beneficial Ownership Information Reporting Form from the website and complete the report at your own pace. This must be filed by the end of 2024 for existing businesses.

Corporate Transparency Act: What’s it for?

The primary purpose of the CTA is to combat financial crimes such as money laundering, fraud and the financing of terrorism. By requiring businesses to disclose their beneficial owners – defined as individuals who either exert substantial control or own at least 25% of a business – Congress aims to enhance the ability of law enforcement agencies to track illicit financial activities.

The law addresses a longstanding issue: individuals with malicious intent often hide behind a corporate structure to obscure their identity, complicating efforts to identify and prosecute wrongdoing.

The government’s intended use of BOI

The government says that the data collected through the Beneficial Ownership Information (BOI) database will primarily be used by law enforcement agencies to bolster national security and prevent illegal activities. The information will be accessible to federal, state and tribal law enforcement agencies, as well as certain regulatory authorities, enabling them to conduct investigations more efficiently.

Importantly, the beneficial ownership information will not be publicly available, protecting the privacy of business owners while still ensuring that authorities have access to crucial data when needed. This balance is designed to prevent the misuse of information while empowering law enforcement to combat financial crimes effectively.

The US government (as well as the G-7) has identified aircraft parts as one of the goods subject to significant risk of diversion in violation of sanctions against countries like Russia. The government will likely use the BOI database to support its export investigations.

Aviation business that are required to report

There are two types of reporting companies: ‘domestic reporting companies’ and ‘foreign reporting companies’. If your company does not fall into either category – meaning it does not meet the definitions or qualifies for an exemption – it is not required to submit a BOI report to FinCEN.

The company may be a domestic reporting company if it is a corporation or limited liability company (LLC) that was created or formed under the laws of the US. This includes business structures created under state law and also under Native American tribal law.

The business may be a foreign reporting company if the business has registered to conduct business in any US State or Tribal jurisdiction by filing a document with a secretary of state or similar office of the State or Tribe. For example, if the business was registered in the Bahamas but it filed as a foreign corporation doing business in Florida, then it could be considered a foreign reporting company.

A statutory trust, business trust or foundation may be a reporting company if it was created by the filing of a document with a secretary of state or similar office. State laws vary on whether certain entity types, such as trusts, require the filing of a document with the secretary of state or similar office to be created or registered. If you control a trust that was created in a jurisdiction that required such filing, then your trust is a reporting company, unless some other exemption applies (for example, a charitable trust may be exempt under 26 USC 4947 because it is treated under the non-profit tax exemptions found in section 501(c) of the tax code).

Key exemptions

While the BOI imposes broad reporting requirements, it also includes 23 specific types of entities that are eligible for an exemption. Typically, these exemptions relate to businesses that are more likely to be ‘known’ to the US government, such as those that already have other information reporting obligations. One of the most relevant exemptions for aviation businesses is the large business exemption.

This applies to companies that have: (1) more than 20 full-time employees in the US; and (2) domestic gross receipts or sales exceeding $5 million; and (3) an operating presence at a physical office within the US. This is the opposite of most laws, where there may be a small business exception. For BOI reporting, there is no small business exception.

Tax-exempt entities may also qualify for an exemption. These entities file a Form 990 with the US government, so the government already has sufficient information on the entity.

If you control an inactive entity, then your inactive entity might be exempt from reporting. An entity may qualify for the inactive entity exemption if it meets all six of the following criteria. First, the entity must have been in existence on or before 1 January 2020. Second, it should not be engaged in any active business operations.

Third, the entity cannot be owned, either wholly or partially, by a foreign person, which is defined as anyone who is not a US citizen or domestic corporation. Fourth, the entity must not have experienced any change in ownership in the past 12 months.

Fifth, it should not have sent or received any funds greater than $1,000, either directly or through any financial account in which it or any of its affiliates has an interest, during the preceding 12-month period. Lastly, the entity must not hold any kind of assets, whether in the US or abroad, including any ownership interests in other corporations, limited liability companies, or similar entities. So, a purpose-built LLC that holds an aircraft would not be inactive (because it holds an asset) but a shell corporation that has been inactive since 2019 would be an example of an inactive entity.

Failure to report: Consequences

If your company fails to report BOI within the required timeframe, several consequences may arise. Willful failure to comply with reporting requirements can lead to serious civil and criminal penalties. Civil penalties may reach up to $500 for each day the violation continues, while criminal penalties could include imprisonment for up to two years and/ or fines of up to $10,000. Additionally, senior officers of a company that fails to file the required BOI report may be held accountable for that oversight.

Providing false or fraudulent information in a BOI report can also lead to severe consequences. This includes submitting inaccurate identifying information about individuals listed in the report, such as using a fraudulent identification document.

Individuals may also face civil or criminal penalties for willfully causing a company to fail to file a required BOI report or to submit incomplete or false information. For instance, if a beneficial owner or company applicant refuses to provide necessary information, thereby preventing the company from submitting complete BOI data, or if an individual provides false information knowing it will be reported to FinCEN, they could be subject to penalties.

If a company believes that a report submitted to FinCEN contains inaccuracies, the company can voluntarily submit a corrected report within 90 days of the original deadline. The CTA provides a safe harbor from penalties in such cases. However, if a person willfully neglects to report complete ownership information or neglects to file correct updated beneficial ownership information, FinCEN will assess the situation and determine the appropriate enforcement response based on its established enforcement mechanisms.

This feature was first published in MRO Management – November/December 2024. To read the magazine in full, click here.

 

The post Beneficial Ownership Information: Is your company in the clear? appeared first on Aviation Business News.

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