BOI reports and Your Small Business

You’ll soon need to file a Beneficial Ownership Information report, or BOI report, about your small business corporation or LLC with the U.S. Treasury’s Financial Crimes Enforcement Network, also known as FinCEN.

This new bit of red tape stems from Congress’s concern about money laundering and other financial crimes. And it’ll cause some small business entrepreneurs and investors to go nuts.

Essentially a BOI report identifies the individuals who own 25 percent or larger chunks of the corporation or LLC and then also individuals who have substantial control (like corporate officers and directors, LLC members, LLC managers, and so on) over a corporation or LLC.

This information gets stored in a federal database so it’s available to law enforcement agencies. And also to financial institutions who need or want to check on their customers.

Why It’s Important to Handle this BOI Report Stuff

Yes, this is all a bit of a headache. I feel pretty sure both the politicians who cooked this up and the bureaucrats who designed the system haven’t thought through the compliance costs for you and your small business. But all of that? Pretty irrelevant. You (and I) want to get ahead of this BOI report stuff for a couple of reasons.

First reason? You may need to file the report yourself. We understand that many accountants and attorneys simply do not want to do this risky, random, hard-to-schedule work.

A second reason to learn and handle this new reporting requirement quickly and correctly? The penalties for failing to file? Pretty brutal. The daily penalty equals $500 (with a $10,000 maximum). And in a worst-case scenario? Willfully failing to file a report can lead to imprisonment.

Note: Presumably, the worst case scenarios should only occur when people willfully break the law. But innocent folks can find themselves targets of aggressive regulators and prosecutors too, as our office has personally observed.

Beneficial Ownership Information (BOI) Report Disclosures

FinCEN requires pretty basic information about corporations, LLCs and similar entities entrepreneurs and investors set up. Which is maybe the only good news here.

Reporting companies (so corporations, LLCs and similar entities) must provide their:

• Full legal name
• Trade names and “doing business as” (DBA) names
• Complete current U.S. address
• State, tribal or foreign jurisdiction where formed
• Internal Revenue Service taxpayer ID number (so probably your EIN)

Tip: If you now need to get an EIN, such as for a family LLC, refer to this blog post: Step-by-step Instructions for Applying for an EIN

Then for each beneficial owner owning 25 percent or more of the company or exercising substantial control, reporting entities must provide an individual’s:

• Full legal name
• Date of birth
• Complete current address
• Unique identification number and jurisdiction from an unexpired U.S. passport, unexpired state driver’s license, or unexpired identification card issued by a state, local or tribal government (Note that if none of these identification documents exist, an individual must use a foreign passport.)
• Image of identification document for the person

By the way, for corporations, limited liability companies and similar entities formed on or after January 1, 2024, the company must also name the applicant or applicants who filed the formation documents with the state, local or tribal government. (This might be the name of the attorney or paralegal who prepared and filed the articles of incorporation or formation.)

Some Organizations Exempt from BOI Reporting

Most small businesses need to file BOI reports, as noted earlier. The Corporate Transparency Act hits small businesses hard. Plan to file the report.

However, a list of about two dozen exempt entities exist. As a generalization, if some federal or state agency already regulates and monitors a firm (so like the Securities & Exchange Commission, the Federal Deposit Insurance Corporation, a state’s insurance commissioner, a public utilities regulator, and so on), the entity doesn’t need to file a BOI report.

Entities employing more than 20 full-time employees in the U.S., generating more than $5 million of revenue in the U.S., and maintaining a physical office don’t need to file. (So big small businesses dodge the bullet.)

Finally, inactive entities with less than a $1,000 of transactions and which own no assets don’t need to file.

Every other corporation, limited liability company or similar entity? Their ownership or management needs to file and provide the information listed in those earlier two sets of bulleted points.

Timing of BOI Reports

So the timing thing is sort of confusing.

You’ll file your BOI report online at www.fincen.gov sometime on or after January 1, 2024.

If your entity existed before January 1, 2024, you have until January 1, 2025.

If your entity formed on or after January 1, 2024 but during 2024, you need to file within ninety days of the date you receive confirmation of the filing or the date the information is publicly available. (Whichever date occurs first triggers the ninety-day countdown.) Thus, if you setup a new corporation, limited liability company, or some other entity from this point forward, be sure you plan to file the BOI report at the very start. (If you’re an attorney or accountant or incorporation service who files articles of incorporation or formation? Please do this. Please.)

If your entity formed after 2024, you need to file with thirty-days of the date you receive confirmation of the filing or the date the information is publicly available. (Again, use whichever trigger occurs first.)

Also note this: If any of the information that goes on a report changes? (See those bulleted lists provided earlier.) You need to file an updated report within thirty days. Almost any change in the information reported on the BOI report triggers a requirement to update the BOI report within thirty days. For example, a new driver’s license triggers a new countdown. The two exceptions we’ve spotted: If a beneficial owner dies, you have until thirty days after the estate is settled. And then if a company dissolves, you don’t have to report that.

Next BOI Report Steps

First, if you want to yourself file the report, get and carefully read the Small Entity Compliance Guide the U.S. Treasury and Financial Crimes Enforcement Network have provided. It’s available here.  And, fortunately, the guide is well-written and thorough. Figure a two to three hour read.

Second, both individuals and reporting companies may apply for and, according to FinCEN, immediately get a FinCEN identifier, or identification number. An individual applies for a FinCEN identifier by supplying the same information as goes onto the BOI report. A reporting company applies by checking a box on the BOI report form. And the advantage of using a FinCEN identifier? Rather than enter all individual bits of information, the individual or company just provides the FinCEN identifier. Note too that using a FinCEN identifier should mean an individual needs to only make one update if some bit of information (like an address) changes. (The instructions don’t say this. But surely the FinCEN system will do this.)

Third, finally, if you get into this subject matter, and realize you just don’t feel comfortable and have too many questions about details? Go ahead and reach out to your accounting firm or attorney. Hopefully one of them will be able to help you. (We are, for example, providing this service to our corporation and partnership tax return clients. We plan to do this work in the spring after tax season ends)