Starting January 1, 2024, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) will require millions of small and medium-sized businesses in the United States to complete beneficial ownership information reporting. In fact, more than 32 million existing companies—as well as an estimated 5 million new businesses formed every year after the effective date—are expected to be impacted by the new filing.
For business owners and the professionals who assist them with compliance, it is crucial to understand the specifics of compliance requirements. This knowledge can help them avoid the serious civil and criminal penalties that come with failing to comply with the regulations.
Parasec has compiled a Frequently Asked Questions (FAQs) section to help our clients navigate this new compliance requirement.
What companies will be required to file a BOI report with FinCEN?
Companies that are required to report are called “reporting companies.” FinCEN identifies two types of reporting companies:
- Domestic reporting companies: Corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
- Foreign reporting companies: Entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
For those that will be impacted, the rule breaks down those reporting companies into two categories: Those formed before January 1, 2024, and those formed after December 31, 2023. While both types are subject to reporting requirements, the information that needs to be submitted varies slightly depending on the category.
Are there any exemptions?
There are 23 types of entities that will be exempt from the impending beneficial ownership information reporting requirements. Those exempt entities are primarily those already more heavily regulated (i.e. financial institutions, public utilities, charities, accounting firms, etc.). Additionally, large reporting companies—those with over 20 full-time employees (in the U.S.) and with $5 million in gross receipts for the prior year—are also exempt. Finally, any entity that is not actively engaged in business, that does not own a subsidiary entity and has not sent or received funds over $1,000 is also exempt. It’s important to carefully review the criteria before making the determination your company is exempt.
What has to be reported?
For reporting companies created before January 1, 2024, the beneficial ownership information (BOI) report must include information on the reporting company itself as well as the beneficial owners of the entity.
Reporting companies created on or after January 1, 2024 must also include information about the company applicants.
What information pertaining to the reporting company must be supplied?
Reporting companies must provide all of the information below:
(1) The reporting company’s full legal name;
(2) Any trade names or “doing business as” names of the reporting company;
(3) A complete current address consisting of:
(a) the reporting company’s principal place of business in the United States; or
(b) in all other cases, the street address of the primary location in the United States where the reporting company conducts business;
(4) The State, Tribal, or foreign jurisdiction of formation of the reporting company;
(5) For a foreign reporting company, the State or Tribal jurisdiction where such company first registers; and
(6) The Internal Revenue Service Taxpayer Identification Number (TIN) of the reporting company, or for foreign reporting companies that have not been issued a TIN, a foreign tax identification number and the name of the relevant jurisdiction.
Who is a beneficial owner of a reporting company?
Under the rule, a beneficial owner includes any individual who, directly or indirectly, (1) exercises “substantial control” over a reporting company, and/or (2) owns or controls at least 25 percent of the ownership interest of a reporting company.
The final rule clarifies in more detail the terms “substantial control” and “ownership interest.” Essentially, the rule captures anyone who can direct, determine, have substantial influence, or make important decisions on behalf of the entity. A reporting company may have only one beneficial owner or it could have multiple beneficial owners.
What information pertaining to the beneficial owners must be supplied?
For each beneficial owner, the following information must be reported on:
(1) Full legal name;
(2) Date of birth;
(3) A complete current address consisting of:
(3a) the individual’s residential street address; or
(3b) in the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business;
(4) A unique identifying number from an acceptable identification document defined as:
(4a) a non-expired U.S. passport;
(4b) a non-expired identification document issued by a state, local government or Indian tribe;
(4c) a non-expired driver’s license issued by a state; or
(4d) if the individual does not possess any of the aforementioned documents, a non-expired foreign passport.
(5) An image of document the unique identifying number came from.
Who is a company applicant?
FinCEN defines company applicants as:
- The individual who directly files the document that creates or registers the company; and
- If more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.
While the number of company applicants per reporting company will be limited to two or less, there is still some debate as to who to name if more than two people are involved in the formation/registration process. We are waiting for further clarification from FinCEN.
Again, only reporting companies created or registered on or after January 1, 2024, will need to report on their company applicants.
What information pertaining to the company applicants must be provided?
For each company applicant (and there can be up to two), the following information must be provided:
(1) Full legal name;
(2) Date of birth;
(3) A complete current address consisting of:
(3a) the individual’s residential street address; or
(3b) in the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business;
(4) A unique identifying number from an acceptable identification document defined as:
(4a) a non-expired U.S. passport;
(4b) a non-expired identification document issued by a state, local government or Indian tribe;
(4c) a non-expired driver’s license issued by a state; or
(4d) if the individual does not possess any of the aforementioned documents, a non-expired foreign passport.
(5) An image of document the unique identifying number came from.
When is the initial report due?
Any domestic or foreign reporting company created before January 1, 2024, must file a report no later than January 1, 2025. That said, they can file any time prior to that deadline. Meaning any existing entities will have a full year to file.
Any domestic or foreign reporting company created on or after January 1, 2024, must file an initial report within 90 calendar days of filing their registration or formation.
Need to update information?
A report must be updated when there is “any change with respect to required information previously submitted to FinCEN concerning a reporting company or its beneficial owners.” Reporting companies will have 30 days to report changes to the information in their previously filed reports. FinCEN has simplified this process by no longer requiring company applicant information to be updated.
What if a reporting company later becomes exempt?
If a reporting company that filed a BOI report later becomes exempt, the company should then file an updated report indicating its newly exempt status.
Need to make a correction?
The final rule provides a 90-day safe harbor if inaccurate or incomplete information is filed. Reporting companies can submit a correction (no later than 90 days after the original report) to prevent civil or criminal liability.
What are the penalties for violations?
The penalties for reporting companies who fail to comply may include:
- civil penalties up to $500 per day until the violation is corrected;
- and a criminal fine of up to $10,000
- and/or up to two years in prison.
Who can view your BOI filing information:
Beneficial ownership information will not be housed in a publicly accessible registry. In fact, FinCEN will be responsible for storing the information in a secure database. Unless you are with a law enforcement agency, you will not have access to this data. That said, financial institutions may gain access to specific information with authorization from the reporting company.
Can Parasec assist with my BOI filing(s)?
We here at Parasec are closely monitoring any developments with regard to the impending beneficial ownership information (BOI) reporting compliance requirements. While we await the effective date, Parasec is actively developing a user-friendly interface as well as secure internal processes to assist our clients with their BOI filings. To ensure you receive updates on this upcoming service, please email parasec.news@parasec.com with a request to be added to our email list.
Please note: These FAQs are not intended to provide legal advice and should not be relied upon as such. We suggest speaking with your legal and tax professionals before deciding in the CTA will impact you and your business.