As regulations get tougher on financial transparency and money laundering, FinCEN has introduced a new requirement for entities like LLCs and corporations to report Beneficial Ownership Information (BOI) by December 31, 2024. This is so the government can track who owns and controls all the business entities, to prevent illegal activities. Non-compliance will result in severe financial and legal penalties.
In this article we’ll cover the basics of the BOI reporting requirement, what’s involved, who needs to comply, the penalties for non-compliance and how a CPA firm can help you with this process. We’ll also give you actionable steps to stay compliant and minimize risk.
What Is Beneficial Ownership Reporting?
Beneficial Ownership Reporting, under the Corporate Transparency Act (CTA), requires business entities to disclose their beneficial owners to FinCEN. A beneficial owner is any individual who owns or controls at least 25% of an entity or has significant influence over its operations. The primary goal of this law is to improve transparency in financial transactions, reduce money laundering, and prevent illegal financial practices by requiring businesses to disclose key ownership information.
Beneficial Ownership Reporting: Who Needs to Comply?
This reporting requirement applies to nearly all LLCs and corporations in the U.S., especially smaller entities that might not have previously disclosed ownership information at this level. Notably, FinCEN requires beneficial ownership reporting for:
- Multi-member LLCs
- Corporations, including S-corporations and C-corporations
- Certain single-member LLCs engaged in business or rental activities
Exemptions to the Rule
There are a few exceptions to the rule, such as large corporations with over 20 employees, $5 million in gross receipts, and a physical office in the U.S., or regulated entities like banks and insurance companies. However, these exemptions are relatively narrow, so it’s essential for business owners to verify whether their entity qualifies for reporting.
What Information Is Required?
The BOI report must contain specific information on each beneficial owner, including:
- Full legal name
- Date of birth
- Current residential or business address
- Unique identifying number, which can be a driver’s license, passport, or other government-issued identification
If you’re working with a CPA firm to file your BOI report, they may already have most of the information required. However, they will need a copy of your government-issued ID to complete the submission.
Additional Information for Single-Member LLCs
Although single-member LLCs are considered “disregarded entities” by the IRS and are not required to file separate tax returns, they still fall under the BOI reporting requirement if they engage in business activities. In these cases, additional documentation, like the name of the LLC and its tax ID number, may be required.
The Risks of Non-Compliance
Failure to comply with the BOI reporting requirements could lead to significant financial and legal consequences. The penalties include:
- Daily Fines: Up to $591 per day for each day the report is late, capped at $10,000.
- Criminal Penalties: Non-compliance could result in up to two years in prison for severe cases.
These steep penalties make compliance with the BOI reporting requirements essential for all eligible entities. Given the high risks involved, it’s advisable not to delay the filing process, even if there are talks in Congress about potential modifications or delays to the requirement.
How CPA Nerds Can Assist
Filing the initial BOI report can be a straightforward process with the right support. Many CPA firms, including ours, offer assistance with preparing and submitting BOI reports on behalf of their clients. If you choose to work with us, here’s how we can assist:
- Data Collection: We’ll work with you to gather the necessary information, including your government-issued ID, and complete the form.
- Compliance and Submission: Once all required data is collected, we’ll handle the submission of the report to FinCEN.
- Ongoing Support: If you experience ownership or address changes after the initial submission, you’ll be responsible for updating FinCEN within the specified timeframe. However, we are available to provide guidance on how to handle these updates.
To engage our services for the BOI report, we will require a signed engagement letter. Our BOI filing service is available at a minimum charge of $250 per report, and we will only file for clients with an existing relationship with our firm.
For Those Who Prefer Self-Reporting
If you prefer to file the BOI report independently, FinCEN provides a portal for self-reporting at https://boiefiling.fincen.gov. Self-reporting is an option, but it’s crucial to ensure accuracy, as errors can still result in penalties.
Preparing for Future Compliance
Once the initial BOI report is filed, future compliance requires vigilance. FinCEN mandates that any changes in beneficial ownership or address be reported within a specific timeframe. While our firm will handle the initial report if requested, subsequent updates will be your responsibility. We recommend setting up reminders and keeping records of any changes to ensure timely reporting.
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