In 2021, Congress passed the Corporate Transparency Act. This law creates a new Beneficial Ownership Information (BOI) reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.
This new law will begin to take effect in 2024, and we expect it to impact the majority of our clients. The law requires most entities (corporations, LLCs, partnerships, and certain trusts) to file a BOI report with the Financial Crimes Enforcement Network (FinCEN), part of the Department of Treasury, which discloses certain information about individuals who own or control the entity. Sole proprietors are not subject to BOI reporting if they do not have a business entity such as an LLC or corporation.
All new entities formed on or after January 1, 2024 will have 90 days from formation to file the report. All entities in existence at December 31, 2023 have until January 1, 2025 to file their initial reports. The reports can be filed through the FinCEN website at https://boiefiling.fincen.gov/boir/html. This report is not part of your income tax return filings.
Some entities will be exempt from filing. These entities include tax-exempt entities, entities which are already required to be registered and regulated by a Federal Agency (such as investment advisors), and large entities (defined as employing more than 20 full-time employees and have gross receipts in excess of $5,000,000).
The BOI report will require the entity to disclose certain information about individuals who own at least 25% of the entity, and individuals who exercise significant control over the entity (such as officers and other important decision makers). The entity will have to disclose the following information for each individual who meets the criteria above:
- The individual’s name
- Date of birth
- Residential address
- An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document (the entity will also have to upload a copy of the identification used)
Entities will file an initial report by the deadlines stated above, but will have to file updated reports within 30 days if there is a change to any reported information. Examples of changes in information are as follows:
- A change in beneficial owners
- A change in information for a beneficial owner, such as a new address or a new driver’s license
As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
This reporting requirement is new to all of us and it is difficult to estimate how burdensome this reporting will be. Our firm has made the decision not to prepare the BOI reports for our clients. We expect that attorneys (and third party services such as LegalZoom) will begin to file this report at the time they form new entities for our clients, but it is ultimately your responsibility to ensure it is filed. We expect that for most of our clients the report will be simple enough that they can file their BOI reports independently. However, for many entities the determination of who is a beneficial owner, and even determining whether the entity is required to file the BOI report, may be so complex that they may need to engage their attorney to assist in the filing.
The law surrounding the BOI reports is lengthy and is very nuanced in some areas. This document cannot, and should not, be relied on as guidance. Our clients need to review the regulations themselves or with their attorneys to determine whether their entity is required to file the report, as well as which individual’s information needs to be reported. FinCEN’s FAQ website (https://www.fincen.gov/boi-faqs#K_1) has very good guidance on any questions you may have and should be read by all business owners to ensure compliance.
If you have any questions or concerns regarding the new reporting requirements, you should contact your attorney.