Beneficial Ownership Information BOI
Beneficial Ownership Information BOI Reporting: What Small Business Owners Need to Know
As of January 1, 2024, a new rule called “beneficial ownership information reporting” (BOI) will come into effect, and it will have implications for many small business owners. This rule requires certain businesses (Corporations and LLCs) to submit their beneficial ownership information to the U.S. government through the Financial Crimes Enforcement Network (FinCEN).
You have a choice to file this report yourself or pay a professional to assist you.
File your own BOI Report
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Companies that were registered before January 1st have until December 31, 2024 to complete the BOI report. Companies formed this year, 2024, have 90 days to file this BOI report. Not following this rule could lead to serious punishments, like large fines or possibly going to prison.
Any domestic reporting company or foreign reporting company created or first registered in 2024 must file the initial filing deadline of the BOI report within 90 calendar days of the date on which it receives actual or public notice that its creation has become effective. FinCEN finalized a ruling on 11/29/2023 providing that newly formed or registered reporting companies must file their initial report within 90 calendar days of receiving notice of their creation or registration.
This article will dive into the key aspects of the final rule on beneficial ownership information reporting and help small business owners understand their responsibilities. We will discuss who must report under this rule, what constitutes a beneficial owner, the reporting requirements, deadlines, penalties for noncompliance, and steps to prepare your business for compliance.
Call us at 330-733-1040 for any questions about filing this report. We can assist you in getting this completed. See our BOI Story.
Understanding Beneficial Ownership Information Reporting
Beneficial ownership information includes identifying info, such as the names of individuals who own or control a business. The BOI rule says that some people in certain businesses must file a BOI report to FinCEN (a part of the U.S. Treasury) certain details. They do this to stop bad people from doing illegal stuff. But if small business owners don’t know or understand these rules, they might get in trouble and have to pay massive fines.
According to Alison Flores, Manager of Tax Institute at H&R Block, “Small business owners are largely unaware of these new requirements and do not understand how they apply. Raising awareness now is imperative to help small businesses comply when the reporting rules take effect [January 1, 2024].”
Determining if the Beneficial Ownership Rule Applies to Your Business
Under the beneficial ownership information rule, a “reporting company” must report general information and beneficial owner information. To determine if the rule applies to your business, you need first to establish if your business falls under the classification of a domestic reporting company. If it does, you must then identify all your beneficial owners, including investment companies and regulated public utilities. There may be an additional burden completing this report.
What is a Reporting Company?
Reporting companies include domestic companies and foreign entities that must follow the beneficial ownership rule. Domestic companies are just American businesses set up as corporations, Limited Liability Companies (LLCs), or other types of companies by filling out paperwork with a state office like the secretary of state or a similar office. Foreign entities encompass companies formed under the law of a foreign country that were created by filing a document to do business in the U.S. These foreign entities must also provide information about their place of business, the state or tribal jurisdiction of formation, and their IRS Taxpayer Identification Number (TIN). For a foreign reporting company, the state or tribal jurisdiction of formation would be the foreign jurisdiction where the company first registers, and the IRS Taxpayer Identification Number (TIN) will be a tax identification number issued by that foreign jurisdiction.
It’s important to note that not all companies are subject to the BOI reporting requirements. There are exemptions for various types of businesses, including accounting firms, tax-exempt organizations, large operating companies, insurance companies, and inactive entities. Each exemption has specific rules and criteria. For a comprehensive list of reporting beneficial ownership information exemptions, consult United States FinCEN’s Small Entity Compliance Guide.
Who is a Beneficial Owner?
A beneficial owner is an individual who directly or indirectly exercises “substantial control” over a company or owns or controls at least a quarter (25%) of the company. Examples of individuals who exercise substantial control include senior officers, appointment or removal authorities, and important decision-makers. You don’t have to “own” stock or ownership in a company to be a “Beneficial Owner”. On the other hand, people who own or control 25% or more of the company might do this through owning shares of stock, having voting power, or having a big stake in the company’s profits or value.
There are certain individuals who are not considered beneficial owners and do not need to be reported, such as minor children, nominees, intermediaries, custodians, agents, employees, inheritors, and creditors. However, it’s important to review FinCEN’s guidelines on beneficial owner information exemptions for more specific information.
Who is Considered a Company Applicant?
Company Applicants are individuals who directly file the document that creates or registers the Reporting Company. If more than one person is involved in the filing. The individual primarily responsible for directing or controlling the filing is also considered a Company Applicant. Company Applicants must be individuals and not companies or legal entities.
Accountants and lawyers may be considered Company Applicants if they directly filed the creation or registration document or if they are primarily responsible for directing or controlling the filing process.
Beneficial Ownership Reporting Requirements
If your business falls under the beneficial ownership reporting requirements, it’s crucial to understand the deadlines and the information you need to report. The reporting requirements vary depending on when your business was created or registered and the types of entities that were created.
Companies Created/Registered Before January 1, 2024
If your business was created or registered before January 1, 2024, you must file the initial BOI report by January 1, 2025. The report should include the reporting company information, beneficial owner information, and any other required details.
New Companies Created/Registered After January 1, 2024
For new companies created or registered after January 1, 2024, the deadline for filing the initial BOI report is within 90 days of receiving notice that your registration is effective. FinCEN extended the original 30-day deadline to 90 days to provide businesses with ample time to comply.
Companies Created/Registered on or After January 1, 2025
If your company starts or gets registered on or after January 1, 2025, you have to file the first BOI report within 30 days after you’re told that your registration is official.
It’s important to note that the portal to submit the report will only open on January 1, 2024. Additionally, you should not file the BOI report annually. Only file the initial report unless you need to correct or update any information.
Information to Include in the BOI Report
The information you need to include in the BOI report depends on when your business was created or registered. Here’s an overview of the information required for each category:
Companies Created/Registered Before January 1, 2024
For companies registered or created before January 1, 2024, the BOI report should include:
- Reporting Company Info:
- Legal name
- Trade, doing business as (DBA), or trading as names
- Business address or principal place of business
- Jurisdiction of formation or registration
- Tax identification number (TIN)
- Beneficial Owner Information:
- Name
- Date of birth
- Residential address
- Identifying the number from an acceptable identification document (e.g., passport or U.S. driver’s license) and the name of the issuing state or jurisdiction
- Image of the identification document
- Taxpayer Identification Number (TIN)
New Companies Created/Registered After January 1, 2024
For new companies created or registered after January 1, 2024, the BOI report should include:
- Reporting Company Information: Same as above.
- Beneficial Owner Information: Same as above.
- Company Applicant Information (if applicable):
- Name
- Date of birth
- Address
- Identifying the number from an acceptable identification document (e.g., passport or U.S. driver’s license) and the name of the issuing state or jurisdiction
- Image of the identification document
Ensuring the Security of Your Reported Information
When filing the BOI report, it’s natural to have concerns about the security of your sensitive information. FinCEN assures that all reported BOI information will be stored in a secure, non-public database. They have implemented rigorous security methods and controls to handle this private information.
Government and foreign officials can request access to secure information through a U.S. Federal government agency. In certain situations, financial institutions may also request access to reported information with the consent of the reporting company. Company’s ownership interest including any foreign company interest may effect ownership structures.
Filing Your BOI Report
To file your BOI report, you must submit it electronically through FinCEN’s website. However, it’s important to note that the reporting form will not be available until January 1, 2024. FinCEN will post the form on their website, and you can complete it following the provided instructions.
Correcting Mistakes and Updating Information
If you realize that there are inaccuracies in the information you reported, it’s crucial to correct them promptly. You have 30 days to correct any mistakes or update information after becoming aware of the inaccuracy or having actual knowledge to know about it.
Additionally, if there are changes in your company or beneficial owner information. Such as a new CEO or a change in ownership interests, you must file an updated BOI report. File an updated report within 30 days of the date of the change for any changes or inaccurate information .
Massive Penalties for Noncompliance
If you don’t follow the rules about reporting who owns a business, you might face really big punishments. FinCEN has outlined the following penalties for businesses that willfully fail to report accurate and truthful beneficial ownership information:
- Civil Penalties: Up to $500 per day of violation
- Criminal Penalties: Up to $10,000 fine and/or up to two years of imprisonment
It’s crucial for small business owners to understand the potential consequences of noncompliance. And take the necessary steps to meet the reporting requirements to ensure the accuracy of the information. These rules are effective January 1, 2024. Be extremally careful not to willfully provide false information on these reports.
Preparing Your Small Business for Beneficial Ownership Reporting
Understanding and following the rules about reporting who owns a business can be really hard for small business owners. You can hire us to complete this report but here’s a step-by-step guide to help you get ready to file the report:
Determine if you are a reporting company.
Identify if your business structure falls under the category of reporting companies, such as LLCs, corporations, or other entities. Understand if you are beneficial owners of the reporting company.
Check if you meet any reporting company exemptions.
Review the specific rules and criteria for reporting company exemptions to determine if your business qualifies for any exemptions.
Identify your beneficial owners.
Determine who the beneficial owners of your business are. These are individuals who exercise substantial control or own at least 25% of the ownership interests.
Determine if any beneficial owners are exempt.
Based on the guidelines provided by FinCEN, verify if any of your beneficial owners fall under the exempt category.
Gather the required information for the BOI report.
Collect all the necessary information, including reporting company information, beneficial owner information, and company applicant information (if applicable).
Electronically file the BOI report by the deadline.
File your initial BOI report within the specified deadline based on when your business was created or registered. File your BOI report today
Stay updated and make necessary corrections.
Regularly review your reporting information and make corrections or updates within 30 days of any changes or inaccuracies.
By following these steps, you can ensure that your small business is prepared for the beneficial ownership reporting requirements.
FinCEN Identifier
FinCEN will issue unique identifying numbers, known as FinCEN Identifiers, to individuals and Reporting Companies upon request. These identifiers can be used in place of personal information when reporting. To obtain a FinCEN Identifier, individuals need to request one through an electronic web form on or after January 1, 2024, providing their full legal name, address, birth date, and an acceptable ID document.
Reporting Companies can request a FinCEN Identifier by checking a box on the BOIR form or by submitting an updated BOIR requesting the identifier.
Access to BOI Reports
Access to BOI reported to FinCEN is subject to specific rules and regulations. Federal, state, local, and certain foreign officials involved in intelligence, national security, and law enforcement activities can request access to BOI through appropriate U.S. federal government agencies.
Financial institutions can access BOI solely to comply with their customer due diligence (CDD) requirements under applicable laws and regulations. However, they require the consent of the Reporting Company, and their requests must be specific to an individual Reporting Company. Financial institutions’ regulators can also access BOI when assessing compliance with CDD requirements.
Concerns and Considerations
While the CTA aims to enhance transparency and combat illicit activities. There are several concerns and considerations regarding its implementation. Taxpayers should assume that the information gathered by FinCEN will be shared with the IRS, as the CTA authorizes disclosure to the Department of the Treasury.
It’s important to fill out the BOI reports correctly and with all the right info. The penalties can be big if you intentionally give wrong or incomplete details. Civil penalties can reach up to $500 per day, while criminal penalties may include fines of up to $10,000 and imprisonment of up to two years.
Identifying all beneficial owners can be challenging, and due diligence is necessary to ensure every individual is included. Determining who qualifies as a beneficial owner can be complex, and the term “substantial control” raises concerns due to its broad definition. Procedures should be established to determine who should be included in the filings accurately.
Additionally
Certain industries, such as real estate, may face additional challenges. In the real estate sector, where entities often own single parcels of real estate, identifying beneficial owners and providing acceptable identification documents can be time-consuming. Entities undergoing frequent changes in control and ownership may find the ongoing filing requirements burdensome, as the BOI report must be updated for any changes in beneficial ownership.
The responsibility of assisting clients, including accounting firms’ reporting company clients, in filing BOI reports currently needs to be clarified. Due to concerns about the unauthorized practice of law, some larger accounting firms refer this work to their clients’ law firms. It is essential to discuss each client’s situation individually and determine whether they require assistance from certified public accountants (CPAs) in reporting and who will perform the work. Providing ongoing support to ensure compliance with the filing requirements and reporting any changes in beneficial ownership is crucial. Additionally, reporting companies may often incur costs associated with professional services hired to understand the reporting requirements and ensure accurate compliance with the Reporting Rule.
Individual taxpayers also have concerns about the CTA, particularly regarding potential IRS audits. While the legislation targets bad actors involved in large-scale illegal activities. Some taxpayers worry that it may inadvertently lead to increased audits for individuals earning less than $400,000 per year.
Preparing for the Corporate Transparency Act
As the deadline for filing BOI reports approaches, it is crucial to start having conversations with clients to ensure they understand the CTA and the info required for the BOI report. Developing procedures and policies to comply with the new reporting requirement and gathering the necessary data should be a priority.
Staying up to date with any additional information released by FinCEN regarding the CTA is essential to provide accurate advice to clients. The filing requirement will be here soon, and taking proactive steps to inform and prepare clients will ensure a smooth transition to compliance.
For more information about the Beneficial Ownership Information BOI reporting requirement, visit the FinCEN website.
Conclusion
Implementing the beneficial ownership information reporting rule in 2024 brings new responsibilities for small business owners. It is essential to understand whether your business falls under the reporting company category and identify your beneficial owners. Complying with the reporting requirements and deadlines is crucial to avoid penalties.
As a small business owner, staying informed and taking the necessary steps to meet the reporting obligations is crucial. You should use FinCEN’s official resources and ask experts for help to understand the beneficial ownership rule better. We can help you complete this report, call us at 330-733-1040
Remember, the info provided in this article is for education purposes only and should not be considered legal advice. Stay proactive, stay compliant, and ensure the transparency and integrity of your business operations.
What is Beneficial Ownership Information and why is it important?
Beneficial Ownership Information (BOI) refers to the information about individuals who ultimately own or control a company or business. It is important because it helps prevent money laundering, tax evasion, and other illicit activities by increasing transparency and accountability in financial transactions. File your BOI report here!
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