There is a new reporting requirement coming soon that affects many small business owners. For 2024, small businesses will be filing a beneficial ownership information (BOI) report with a branch of the U.S. Department of Treasury called the Financial Crimes Enforcement Network (better known as FinCEN).
A failure to comply can result in a company and the individuals responsible for the non-compliance being subject to significant penalties. However, certain entities may be exempt from this reporting requirement. One exemption is large operating companies, which is defined as those who operate in the United States, have more than $5 million in gross receipts, and have more than 20 full-time employees.
- The new filing rule applies to most US companies and Foreign Companies doing business in the US.
- The information provided includes details about the (beneficial) owners of the Company and the those that started the Company, if a new Company.
- Companies created prior to 1/1/24 will have one year to file the initial reports.
- Companies created after 1/1/24 will have 30 days from receiving their notice of creation to file.
The BOI reporting requirement is an anti-money laundering initiative enacted through the Corporate Transparency Act, P.L. 116-283, in 2021 that mandates BOI be reported to the Financial Crimes Enforcement Network (FinCEN).
In September 2022, the Financial Crimes Enforcement Network (FinCEN) issued a rule implementing the Corporate Transparency Act’s beneficial ownership information (BOI) reporting provisions. This rule was established to protect the security and financial system of the United States by providing important information to law enforcement and intelligence agencies, state and local officials, and financial institutions to help prevent acts of laundering or hiding assets.
The rule explains who must file a BOI report, what information to report, and when reports are due. It specifically requires reporting companies to provide information on two categories of individuals: (1) the beneficial owners of the entity; and (2) the company applicants.
A “reporting company” includes corporations, limited liability companies, limited liability partnerships and any other entities created by filing with the Secretary of State or similar office under the laws of its domicile state. This includes both domestic and foreign companies in the event that the foreign company is registered to conduct business in any U.S. state pursuant to state filing.
A “beneficial owner” of the company is anyone who exercises substantial control or owns or controls at least 25% of the ownership interests of the reporting entity. The “company applicant” is either the individual who files the document that establishes the entity or the individual responsible for directing or controlling the filing of the relevant document by another individual. When filing these reports with FinCEN, the following information about each beneficial owner must be identified: name, birthdate, address, and a unique identifying number and issuing jurisdiction from an acceptable document of identification and an image of that document (e.g., valid driver’s license or passport).
The rule will be effective starting January 1, 2024 and reporting companies that were created prior to that date will have one year to file the initial reports. Companies created after that date will have 30 days from receiving their notice of creation to file. Reporting companies do not have to report their Company Applications if the reporting company was established before January 1, 2024. Companies have 30 days to change any information from previous reports and must correct inaccurate information within 30 days of when the company becomes aware of the incorrect information. There is no fee for filing and reports will be submitted electronically through a secure system on FinCEN’s website.
Organizations such as the AICPA are advocating for a delay in the implementation date, however at this time the planned start date of January 1, 2024 is still in effect.
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