New Federal Business Filing Requirement Starting in 2024

BOI Reports

Starting in 2024, many business entities will be required to comply with the Corporate Transparency Act (the “FCTA” or the “Act”).  Enacted in 2021 to enhance corporate transparency and combat tax fraud, the FCTA requires all “reporting companies” to submit Beneficial Ownership Information (“BOI”) reports to the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) by December 31, 2024.  (31 U.S.C. § 5336(a)(11)(A).)

I.  What are reporting companies?

For the purposes of the FCTA, a “reporting company” is defined as any corporation, limited liability company (“LLC”), or other similar entity that is (a) created either domestically by filing with the jurisdiction’s secretary of state or under the laws of a foreign county, and (b) registered to do business in any state.

There are, however, numerous carve-outs from the above definition, including certain highly regulated financial intuitions, nonprofit entities, political organizations, and certain business entities already subject to regulation by the Securities and Exchange Commission such as banks.  In addition, the Act also excludes “large operating companies,” defined as entities with an operating presence at a physical office in the United States and employing more than 20 employees on a full-time basis in the US that demonstrated gross receipts exceeding five million ($5,000,000) dollars in their previous federal income tax returns.

II.  What needs to be reported?

BOI reports must identify each reporting company’s beneficial owner or owners.  The FCTA defines “beneficial owners” as any person or entity that either exercises substantial control over the business entity or who owns or controls a twenty-five (25%) percent interest in the company.  (31 U.S.C. § 5336 (a)(3)(A).)  This definition does, however, exclude minors, creditors, and other discrete classes from the reporting requirement.

BOI reports must include each beneficial owners’ full legal name, date of birth, current residential or business address, and either a unique identifying number from an acceptable identification document or a FinCEN identifier.  (31 U.S.C. § 5336 (b)(2)(A).)  Either a valid United States passport, a valid driver’s license, a nonexpired identification document issued by a state, local government, or Indian Tribe, or, if the individual does not have one of these forms of identification, a foreign passport would be acceptable forms of identification.

In addition, BOI reports must also disclose some information about the business entity itself, including its full legal name, trade name, the current address of the company’s principal place of business, its jurisdiction of formation, and its taxpayer identification number.  Upon request and after submitting the BOI report to FinCEN, beneficial owners will be issued a FinCEN identifier.

BOI reports may be filed by anyone a reporting company authorizes to file the report on its behalf, including employees, owners, or third-party service providers such as attorneys or accountants.  The person responsible for filing the BOI report will need to certify that the information provided is accurate and complete.

III.  Deadlines and the BOI Reporting Process

Reporting companies must file a report containing their beneficial ownership information through FinCEN’s website.  Companies must file their BOI reports by the following deadlines to comply with the FCTA:

  • Domestic reporting companies formed prior to January 1, 2024, are required to file an initial BOI report by January 1, 2025. (31 U.S.C. § 5336 (b)(5).)
  • Companies formed this year (i.e. after January 1, 2024) will be required to file a BOI report within ninety (90) days of receiving actual or public notice of the company’s creation or registration, whichever is earlier.

Once a report has been filed, FinCEN will provide a confirmation receipt.  Reporting companies will need to update their reports in the event any beneficial ownership changes occur, such as a sale of the business or an owner’s death.

IV.  Penalties for Noncompliance

Intentional misrepresentation of BOI information or intentional failure to provide complete or updated BOI information on a BOI report could result in criminal or civil penalties.  (31 U.S.C. § 5336 (h)(3)(A).)  Continued reporting violations may result in five hundred dollar ($500) daily penalties until those violations have been remedied.  An FCTA violation may result in fines up to ten thousand dollars ($10,000) and up to two (2) years imprisonment.

The FCTA does, however, also contain a safe harbor provision exempting some reporting companies who submit BOI reports containing inaccurate information and voluntarily submit corrected reports to FinCEN.  (31 U.S.C. § 5336 (h)(3)(C).)

 

Authored by Reuben, Junius & Rose, LLP Attorney, Alex Klein.

The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.