Understanding FinCEN’s Beneficial Ownership Information (BOI) Reporting Requirements – A Quick Overview
Understanding beneficial ownership information is essential. With the introduction, starting from January 1, 2024, the Corporate Transparency Act (CTA) mandates that most small businesses in the U.S. are required to submit the Beneficial Ownership Information (BOI) Report to the Financial Crimes Enforcement Network (FinCEN).
These new regulations are important to enhance the transparency and accuracy of the business ownership structure. However, this law was enacted to protect illicit activities such as money laundering, financial terrorism, and tax deductions. When filing your BOI report, businesses must provide current and accurate information in the report.
In this article, we’ll explore what the BOI report means, who must file it, when the deadline is, and what the late filing penalty is. Let’s break down the reporting process with these guidelines.
BOI Report: Why is this required?
The BOI report is a comprehensive report that provides important information regarding the reporting company’s ownership structure and also significantly highlights substantial control over a reporting company. The report includes important and sensitive requirements, including the reporting company’s information, the beneficial owner’s information, and the company applicant’s information.
Who must file the BOI Report?
As per FinCEN, businesses that meet the “Reporting Company” definition should submit the BOI report. The reporting company can be categorized into two types:
- Domestic Reporting Company – These are companies established or registered under U.S. tax laws, such as LLCs, corporations, and other partnerships.
- Foreign Reporting Company – These are companies formed or registered outside the U.S. but conduct business or trade under U.S. tax law.
If a company falls into either of these categories, it is required to submit the BOI report to FinCEN.
Which types of entities are exempt from filing the BOI reporting requirements?
These are the 23 types of entities classified by FinCEN that are exempt from submitting the BOI report:
- Securities reporting issuer
- Governmental authority
- Bank
- Credit Union
- Depository institution holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- An investment company or investment adviser
- Venture capital fund adviser
- Insurance Company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company
- Subsidiary of certain exempt entities
- Inactive entity
| Note: Companies created or registered on or after January 1, 2024, are also required to submit the BOI report, even if they have wound up their affairs and ceased conducting business before that date. |
What are the reporting requirements to be submitted in the BOI report?
Businesses must include the following information in their BOI reports:
- Type of Filing: The company must specify the type of report being submitted, such as an initial report, corrected BOI report, updated BOI report, or newly exempt entity report.
- Reporting Company Details: This includes the company’s full legal name, trade name or DBA, type of business, and EIN.
- Company Applicant Details: This includes the applicant’s name, date of birth, address (if the person responsible for registering the company with the secretary of state or a similar office provides the business street address or else provides the residential address), a unique identification number, and an image of acceptable documentation (e.g., U.S. passport or state driver’s license).
- Beneficial Owner Details: This includes the beneficial owner’s name, date of birth, address, and an image of an acceptable document, such as a passport or state driver’s license.
| Note: If the beneficial owners or company applicants have already obtained a FinCEN ID, you can provide that ID instead of submitting all the reporting requirements. |
What is a FinCEN ID?
The FinCEN Identifier, or FinCEN ID, is a unique identifying number issued by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Once a person submits all the required information, including their name, address, and date of birth, FinCEN immediately provides this unique identifier.
The FinCEN ID consists of a 12-digit sequence:
- For individuals (including beneficial owners or company applicants), the ID starts with “3” followed by 11 additional digits (e.g., 300000000000).
- For reporting companies, the ID starts with “2” followed by 11 additional digits (e.g., 200000000000).
Who are the Company Applicants?
For reporting companies formed or registered on or after January 1, 2024, submitting the company applicant’s details in the BOI report to FinCEN is required. A company applicant must be a person responsible for preparing the necessary documents to register the reporting company with the secretary of state or a similar office. Legal entities, organizations, or companies cannot be considered company applicants. A reporting company may have a maximum of two company applicants. If more than one person is involved in the filing process, the primary person can be designated as the company applicant.
Company applicants can be classified into two categories:
- Direct Filer: The person who directly files the documents to register the company with the secretary of state or a similar office.
- Directing or Controlling: The person who is not directly involved in the filing process but is responsible for directing or controlling the filing process with the secretary of state or a similar office.
Who are the Beneficial Owner(s)?
A beneficial owner is any individual or entity that exercises substantial control over a reporting company or directly or indirectly owns or controls more than 25% of the ownership interest in the reporting company. A company can have numerous beneficial owners.
The following individuals cannot be considered beneficial owners’ criteria
- Minor child
- Nominee, custodian, intermediary, or agent
- Employee (unless they meet the criteria for beneficial ownership)
- Inheritor
- Creditor
When is the deadline for submitting the BOI report?
The deadline to file BOI report may vary on the reporting company’s formation date:
- Existing Companies formed prior to January 1, 2024 – Submit the BOI report by January 1, 2025
- Companies formed on or after January 1, 2024 – Submit the BOI report within 90 days
- Companies formed on or after January 1, 2025 – Submit the BOI report within 30 days
Note: Companies must submit updated or corrected BOI reports within 30 days of the changes or corrections occurring. Any updates regarding company applicants do not need to be included in the BOI report.
What are the penalties for not filing or late filing of the BOI report?
Failure to submit the BOI report within these time frames will result in potential penalties from the FinCEN department. The penalties might include:
- Civil Penalties – This will range up to $591 per day for non-compliance.
- Criminal penalties – This will range from $10,000 or up to two years in prison.
Conclusion
In conclusion, this article provides a clear understanding of the BOI report and outlines the key requirements businesses need to fulfill to complete the report. With this guide, you can confidently begin your BOI reporting process.
There’s no need to worry about the filing process. TaxBandits is a trusted and secure e-filing software that manages the entire process efficiently. As a sister product to Express Extension, TaxBandits offers innovative features designed to make your reporting process straightforward and secure.
Our user-friendly platform simplifies BOI filing, ensuring a smooth experience. Notably, TaxBandits provides an exclusive feature that allows you to send a secure link via email, enabling beneficial owners to provide their details at their own convenience. Additionally, you can easily resume your BOI reporting process from where you left off.
Start your report with TaxBandits today and benefit from these groundbreaking features!
