New Federal Reporting Requirement: Beneficial Ownership Reporting Rule (BOI)
SEE IMPORTANT UPDATE—BOI Reporting Currently Suspended Under Federal Court Order (Beneficial Ownership Reporting Rule (BOI) Filing Requirement Currently Suspended)
Starting January 1, 2024, many companies will need to report details about their beneficial owners—individuals who ultimately own or exercise substantial control over the company—to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). This requirement, established by the Corporate Transparency Act, aims to support U.S. law enforcement and regulatory agencies. As this new reporting requirement is not related to federal tax or accounting, ASL will not be preparing or filing the required information. Read on for further details of this new requirement.
Who Needs to Report
A domestic legal entity, such as a corporation, LLC (including a single member LLC) or limited partnership, which is formed by filing a document with a Secretary of State or a similar government agency must report its “beneficial ownership” information to FinCEN. Foreign entities that register to do business in the U.S. by filing the same type of document also have this reporting requirement. However, entities that are created without filing any documents with a government agency, like some trusts, typically do not need to report.
Deadlines
Here are the deadlines for filing beneficial ownership information (BOI) reports:
- Entities created or registered to do business before January 1, 2024, must file their initial BOI report by January 1, 2025.
- Entities created or registered to do business on or after January 1, 2024, and before January 1, 2025, must file their initial BOI report within 90 calendar days. This 90-calendar day deadline runs from the time the entity receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier.
- Entities created or registered to do business on or after January 1, 2025, must file their initial BOI report within 30 calendar days of receiving notice that the entity’s creation or registration is effective.
You may have heard about a recent court case in Alabama that declared the Corporate Transparency Act unconstitutional and bills pending in Congress to delay the implementation date for BOI filings. We recommend complying with the current filing dates as the specified court case only applies to members of the organization that filed the suit and the bills in Congress are currently “stuck” and not going anywhere right now.
Exemptions
There are 23 exemptions from the requirement to report beneficial ownership information. Some of these exemptions apply to banks, credit unions, insurance companies, public utilities, and other heavily regulated industries, along with various types of non-profit organizations. For small and medium-sized businesses, the two most relevant exemptions are:
- Large Operating Companies
- Must have over 20 full-time employees in the U.S.
- Regularly operates from a physical location in the U.S. that it owns or leases.
- Filed a U.S. federal tax return in the previous year reporting more than $5 million in gross receipts or sales from U.S. sources.
- Inactive Entities
- Must have been established on or before January 1, 2020.
- Cannot be engaged in any active business.
- Must have no foreign ownership, directly or indirectly.
- Cannot have had any ownership changes in the last twelve months.
- Must not have sent or received more than $1,000 in the last twelve months.
- Should have no assets.
What is Reported
If an entity is required to report to FinCEN, it must provide details (name, address, copy of ID document) about its 25% or greater ultimate individual owners and anyone who exercises “substantial control” over of the entity (such as certain officers and other parties). Special rules apply if an entity is owned by a trust. Additionally, it must include information about the entity itself. Reporting is not a one-time obligation; entities must also report any changes in “beneficial ownership” information within 30 days of when those changes occur.
How to Report
Once the required information has been compiled it is fairly simple to submit the entity’s BOI report using FinCEN’s secure portal: https://www.fincen.gov/boi. FinCEN offers a helpful guide to determine whether you need to report and how to do so: https://www.fincen.gov/boi/small-entity-compliance-guide.
Penalties for Noncompliance
The civil penalty for willful failure to file or provide correct information is currently $591 per day and the criminal penalties are a fine up to $10,000 and imprisonment up to two years. Penalties may be assessed against an entity’s owners and officers.
Action Item
Since BOI reporting is not related to taxes or accounting ASL will not be assisting with BOI filings therefore we recommend consulting with legal counsel or a third-party advisor. Some of our clients have successfully worked with the following provider to meet their BOI reporting requirements: Harbor Compliance – Beneficial Ownership Information Reporting Service
As the filing date is near and determining “beneficial owners” may be complex depending on an entity’s ownership and management structure we suggest starting on these filings as soon as possible. FinCEN is expecting approximately 25.5 million filings before the end of the year so your legal counsel and third-party advisors may be busy.
