Update as of Dec. 9, 2024: The 4th District Federal Court in Texas has issued an injunction against penalties for failure to file the BOI report, however, FINCEN may still accept voluntary reports. FINCEN has stated they will comply as long as the injunction is in effect. Because courts have ruled both ways on this, we don’t know what the end result will be. We have three options now: (1) voluntarily file, (2) gather the information but hold off filing, or (3) cheer the ruling, but watch closely how this plays out. If the injunction gets tossed and the law stands, we could be in a jam. You’ll have to make your own decision, I’ve got no recommendation.
Did you know that every entity registered with any state secretary of state must complete an additional Beneficial Owner Information (BOI) report or face a $500-per-day late filing penalty? I hope you knew that, but I bet this got your attention if you didn’t know.
On Jan. 1, 2021, Congress passed the Corporate Transparency Act, which requires a BOI report to be submitted by companies. Both sides of the aisle wanted the BOI reporting requirement to help U.S. law enforcement combat money laundering, the financing of terrorism and other illicit activity. With BOI reporting already in place elsewhere, certain U.S. states have now become favorite jurisdictions for front and sham companies.
The BOI report is filed with the Financial Crimes Enforcement Network, FinCEN for short. The use of “financial crimes” in the name tells us a lot about the purpose. Access to the BOI information is limited to six requestors, basically law enforcement, the U.S. treasury and financial regulators. It’s not available to private companies, to credit bureaus or for civil legal matters – though banks may request information with customer permission.
The basic concept is that any state-registered entity is required to report the actual persons who are the beneficial owners.
State-registered entities
Breaking this down, the first key point is a BOI report applies to a state-registered entity. The most common state-registered entities for most of us will be LLCs, corporations and limited partnerships. If you own or participate in any of these, you probably need to file a report. Reporting applies even if the entity doesn’t file its own income tax return. Simply registering with the state triggers the BOI filing requirement and starts the clock on the filing deadline.
Beneficial owners
The second key point is a beneficial owner is a living, breathing person. However high the stack of layered entities, the BOI report drills down to the real persons behind it all. In fact, the report requires a copy of a photo ID for the beneficial owners to be uploaded.
A BOI is not limited to just ownership as we generally understand it. For BOI reporting, anyone who owns or controls 25% of the ownership interests is listed along with their spouse in community property states. We’ve also got to watch for nonowners that exercise “substantial control,” such as a corporate officer or farm manager. The reporting requirement looks at who really controls the company, as well as who technically owns the entity. This gets murky, and the regulations only give us a few examples.
We also have to consider that playing word games to get around the entity or beneficial ownership rules is risky. Both tests have “or similar” language to gather in those trying to paint over reality with different verbiage.
Filing deadlines and exemptions
A transition rule allows until Dec. 31, 2024, to file for entities existing before Jan. 1, 2024. But watch out, any new entity must file within 30 days beginning next year. If there is a change in ownership or key information, such as an address change for the entity or an owner, that must be reported within 30 days of occurrence. Miss that 30-day window and the $500-per-day penalties. This is the requirement that is going to be the hardest to keep up on.
Though the law casts a pretty wide net for who must report, there are also 23 exemptions, most of which arise from overlap with existing reporting regulations. Few of these exceptions concern most of us.
There is one key exception that can help: being a big enough operator. If the operating entity employs over 20 full-time people, has gross sales over $5 million and is physically present in the U.S., it is exempt from BOI reporting. All three conditions have to be met, but with enough full-time employees, a lot of operating farms will escape reporting.
Even if the operating-size exemption applies, watch out for small LLCs that you might have out there. Even if the operating farm doesn’t have to report, the LLC holding the land might. The exception for larger entities does not consolidate the whole group, it looks at each entity individually. If there are 20 different LLCs for 20 properties, you get to report BOI information 20 times.
Reporting procedures and precautions
The reporting for this is all done online. You can either fill out the information online or download a form, fill it out and upload it back to the website. There is nowhere to mail the form.
It’s not really a hard form to do once you have the information. You will need a scan or picture of your photo ID saved on your computer to upload. Ten to 15 minutes per entity will do it.
If you have a lot of entities to report, consider first getting a personal FinCEN identifier. With that, you no longer need to reenter the personal information with each entity. That number can be obtained on the FinCen website.
I would hope this is obvious, but please don’t respond to the solicitations from the web, email or text from random parties to “help” you. We shouldn’t be giving this kind of information to strangers on the internet. Either do it yourself or engage your usual attorney or accountant to help you.
This may also be one of those filings where, if in doubt, file it. It’s pretty easy to do, and there is a lot of potential pain if missed or ignored.
This article is provided for informational purposes only. Readers should consult their own professional advisers for specific advice tailored to their needs. Information contained in this article may be subject to change without notice.
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