Commencing January 1, 2024, businesses will encounter a significant transformation in federal regulations with the introduction of the Beneficial Ownership Information Reporting Rule (BOI), a pivotal component of the Corporate Transparency Act. This recent regulatory development carries substantial implications, especially for small business proprietors, who are now compelled to conform to its provisions. BOI reporting is now a mandatory legal requirement, subject to specific exemptions. Failure to comply with BOI reporting obligations may result in penalties of up to $10,000 and potential criminal charges. This article will explain the reasons behind BOI reporting requirements, offering insights into how the Beneficial Ownership Information Reporting Rule may apply to your company. We will explore what companies will need to report, what companies are exempt, and the specifics of when and how companies can fulfill their BOI reporting obligations.
The primary objective of BOI reporting is to furnish the U.S. government with comprehensive information about companies and the individuals who ultimately own and control them. This regulatory initiative seeks to combat diverse criminal activities, including money laundering, tax fraud, securities and financial fraud, counterfeiting, piracy, drug trafficking, human trafficking, funding of terrorism, acts of foreign corruption, and other illicit actions. Entities obligated to report BOI information, referred to as "reporting companies," must submit reports to the Financial Crimes Enforcement Network (FinCEN), disclosing information about the companies and their beneficial owners. The information gathered through BOI reports aims to prevent criminals from exploiting shell companies and other corporate structures to conceal their illegal activities and financial crimes.
The Beneficial Ownership Information rule stipulates that a "reporting company" must provide both general information and specific details about its beneficial owners. The crucial question arises: does this requirement apply to your enterprise? The initial step involves determining if your business meets the criteria of a "reporting company." If it does, the subsequent step is to identify all individuals deemed beneficial owners.
Business entities subject to the beneficial ownership rule include particular domestic enterprises and foreign entities:
It is imperative to note that the Beneficial Ownership Information reporting requirements do not universally apply to all businesses. A total of twenty-three distinct types of businesses are granted exemptions, including
Each exemption category for reporting companies is governed by distinct criteria. To illustrate, significant operating companies qualify for exemption only when they satisfy specific conditions, such as employing over 20 full-time U.S. employees, having a physical office presence in the U.S., and reporting U.S. gross receipts or sales surpassing $5 million in the previous year's business tax return. For an exhaustive compilation of reporting company exemptions and in-depth details, it is recommended to consult FinCEN's Small Entity Compliance Guide.
An individual is considered a beneficial owner if they are directly or indirectly engaged in any of the following:
It is essential to acknowledge that not every individual falls within the beneficial owners' category or may be exempt from reporting. The following individuals may be exempt from being reported as beneficial owners:
More details on the regulations regarding individuals who may be exempt or may not be considered beneficial owners can be found in FinCEN's Small Entity Compliance Guide
The beneficial owners of reporting companies are required to provide specific personally identifiable information for each beneficial owner, including their legal name, birthdate, home address, an identifying number from a driver's license, state ID, or passport, and an image of the document that the number is from.
To complete your BOI report, go to the FinCEN website and employ the electronic submission procedure. Take note that the form is presently inaccessible, and the ability to file will be open commencing January 1, 2024.
It is imperative to submit your BOI report promptly to steer clear of non-compliance penalties. The deadline is determined by your business's inception or registration date.
Sources:
1. https://www.fincen.gov/boi-faqs
3. https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet
5. https://www.eisneramper.com/insights/tax/boi-reporting-begins-1123/
6. https://www.aicpa-cima.com/resources/landing/beneficial-ownership-information-boi-reporting