On January 1, 2024 a new federal requirement called the Corporate Transparency Act (CTA) becomes effective.
Most new and existing businesses will be required to file a Beneficial Owner Information Report (BOI report) with the Financial Crimes Enforcement Network. FinCEN is a bureau of the US Department of Treasury that investigates financial crimes.
By identifying who directly or indirectly owns or controls a business, the CTA will make it harder for criminal networks and corrupt officials to hide illicit money or property in the US.
Because this new regulation will impact self-directed investors using an IRA-owned LLC to achieve checkbook control, we wanted to address a few of the most common questions in advance of the deadline.
Yes. As a state registered business, a LLC owned by an IRA will need to file a BOI report.
No. The Solo 401(k) trust and IRA-owned trust are not state registered business entities.
They are therefore not subject to BOI reporting requirements.
We know people are going to ask this question.
No. That would be a foolish waste of time, energy, and money.
The government already has your personal information, and your IRA is already highly regulated.
Unless you are using your IRA LLC to engage in financial crimes, you have nothing to be concerned about.
The decision whether to use an IRA LLC or IRA trust is driven by several factors such as your investment interest, the state where you reside, and the state(s) in which investments may take place.
The same factors we use today to help clients determine the best plan fit still apply, and supersede concerns about BOI reporting.
That said, many clients who may have defaulted to the IRA LLC simply because it is more widely known may wish to evaluate the IRA trust.
Existing businesses need to file an initial BOI report before January 1, 2025.
You have one full year after the filing system becomes available to submit your first filing.
A new entity formed on or after January 1, 2024 will have 30 days to file an initial BOI report.
The filing system is not yet available. FinCEN will begin accepting BOI reports on January 1, 2024.
The following information about the company is required:
In the case of an IRA LLC, the IRA account holder is considered the beneficial owner. The following will need to be provided:
While the IRA owned LLC passes its income to a tax-sheltered IRA, it does not meet the formal definition of a tax-exempt entity.
To be exempt from BOI reporting requirements, the entity itself would need to be a church, charity, non-profit, or political organization exempted under Section 501(c)(3) or Section 527 of the tax code.
The BOI exemption stems from the fact that such organizations are already subject to filing and reporting obligations that make BOI reporting unnecessary.
We have not made a determination, as we do not yet have access to the reporting system from FinCEN.
You will have the option to self-file, and we will certainly provide further guidance once the filing system becomes available.
We may choose to identify one or more reliable 3rd party services for those people who choose not to self-file.
There is no fee for self-filing.
Failure to file can result in significant penalties. You can be charged $500 for every day you fail to file, (up to $10,000), imprisoned for up to two years, or both.
If you want to take a deeper dive, feel free to visit https://www.fincen.gov/boi
This article covers all we currently know about this topic.
As more details become available from FinCEN, we will update this page and include anything significant in our monthly newsletter.
