Chances are, your business will soon face a new compliance requirement: FinCEN’s Beneficial Ownership Information reporting requirements, also known as BOI reporting.

This new requirement takes effect on January 1, 2024, and it could be tricky for business owners who aren’t aware of the reporting requirements and familiar with the kind of information these reports require.

Read on to learn more about what BOI reporting entails. By proactively preparing for this regulation now, you’ll be better equipped when these rules come into effect next year.

What Is Beneficial Ownership Information Reporting?

Beneficial Ownership Information (BOI) reporting is part of the Corporate Transparency Act (CTA)—legislation Congress passed to crack down on illegal activity, including money laundering, corruption, and tax fraud. Proponents believe that increasing transparency in business ownership will help prevent criminals from hiding illegal gains, cash and other property in the U.S.

Businesses subject to the CTA must file a BOI report with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN). The report provides information on:

• The reporting company
• Each beneficial owner of the business. Beneficial owners include individuals who directly or indirectly exercises substantial control over the company or controls at least 25% of its ownership interests
• Each company applicant. These are the individual who directly files the document to create the reporting company and the person responsible for directing or controlling the filing if more than one person is involved.

Who Needs to File a BOI Report?

The Corporate Transparency Act requires several types of businesses to file a BOI report, including corporations, limited liability companies (LLCs), and all other entities created by filing a document with the Secretary of State.

There are a few exceptions, but these exceptions primarily include businesses already subject to substantial federal and state regulations, including publicly traded companies and financial institutions. Other notable exceptions include:

• 501(c)3 non-profit organizations
• Tax-exempt political organizations
• Charitable and split-interest trusts
• Tax-exempt entities operating exclusively to assist another exempt non-profit entity (as long as it’s owned and controlled solely by one or more U.S. citizens)
• Large operating companies (any entity with more than 20 full-time employees, operating at a physical location in the U.S., and reporting more than $5 million in U.S. gross operating receipts or sales on its prior-year federal income tax return)
• Inactive businesses that existed before January 1, 2020, but are not engaged in active business

This means beneficial ownership information reporting requirements will primarily impact small- and medium-sized businesses other than sole proprietorships.

What Is the Penalty for Not Reporting?

Businesses in existence as of January 1, 2024, must file their first report by January 1, 2025. Reporting companies formed after January 1, 2024, have 30 calendar days from the date they legally establish the business to file an initial report.

Failing to submit a BOI report on time could result in civil and criminal penalties. The civil penalty is $500 per day, and criminal penalties include up to $10,000 in fines, up to two years in prison, or both.

Information Required for Beneficial Ownership Information Reporting

To complete a BOI report, business owners must provide details about the reporting entity and its owners/company applicants.

For the reporting company, information includes:

• Legal name
• Trade name or DBA (if different from legal name)
• Taxpayer identification number (EIN or other applicable identification number)
• Address of principal place of business
• Jurisdiction of formation

For beneficial owners and company applicants, the required information includes:

• Full legal name
• Date of birth
• Address
• Identification number (e.g., driver’s license, passport number, etc.)
• An image of their identification document

Starting Your Preparation for BOI Reporting

Preparing for the BOI reporting requirements now can help ensure seamless compliance when the time comes. Here are some steps you can take to get ready.

• Identify all business entities in which you have ownership. Don’t forget about LLCs and Family Limited Partnerships.
• Understand whether each entity is subject to BOI reporting obligations. If you’re a beneficial owner of any under-utilized entities, consider whether you want to close the business or sell your interest before the reporting deadline if that entity no longer serves a real purpose.
• Identify and collect information on beneficial owners and company applicants. Once you understand the rules, identify your business’s beneficial owners and company applicants. Start collecting and organizing the required information. You may have some information on hand, but you may need to verify addresses, get copies of an acceptable identification document, etc.
• Establish a system for keeping your information updated. After your first report, you must report changes to the reporting company’s information and its beneficial owners to FinCEN within 30 calendar days. Ensure you have procedures to identify those changes and update your reports.
• Consult a professional. Consult with your attorney if you’re unsure about any aspect of the BOI reporting requirements. This can help you avoid potential pitfalls and ensure you’re prepared when the time comes to file your report. Also, discuss whether you plan on handling reporting yourself or would like your advisors to handle reporting on your behalf.

You will be able to file the reports electronically via a secure filing system that will be available on FinCEN’s website. Although it’s not up and running currently, the Treasury Department has promised it will be available by the time you need to file.

Understanding whether your business falls into the reporting category is crucial for compliance with the new rules. If you’re unsure, it’s wise to seek professional advice to avoid any potential pitfalls.

If you need help figuring out whether your business has a reporting requirement, contact NewWay Accounting. We’re happy to be a resource as you prepare to report beneficial ownership information and navigate other compliance needs!