Do I need to report Beneficial Ownership Information?

November, 15 2024 by Carolyn Richardson, EA, MBA

You may have been hearing a lot recently about beneficial ownership information reporting, particularly if you are running your own business. Maybe you heard about it from your barber or brother-in-law and think it doesn’t apply to you and your small business. Maybe you are scratching your head and wondering what I’m talking about. If any of these apply to you, read further! If you’ve heard of it but aren’t certain whether it applies to you, this blog may help clarify the reporting requirement.

What is beneficial ownership information reporting, or BOI? And are you supposed to report something?

Beneficial ownership information reporting is a significant development in the realm of corporate governance, finance, and regulatory compliance. It refers to the process by which companies disclose the identities of individuals who ultimately own or control the company, known as beneficial owners. This concept is essential for promoting transparency, combatting financial crime, and ensuring that the integrity of financial systems is maintained.

Beneficial ownership information, or BOI, was implemented by Congress as part of the Corporate Transparency Act of 2021 to curb money laundering and other illicit financial activity in the United States. It requires certain businesses, referred to as reporting companies, to report who their beneficial owners are to the Financial Crimes Enforcement Network or FinCEN. Beginning January 1, 2024, new companies formed or operating in the United States must report information about their beneficial owners. It should be noted that this information is not reported to the Internal Revenue Service. Instead, it is reported to the FinCEN, another department in the Department of the Treasury.

The importance of identifying beneficial owners stems from the fact that financial criminals often exploit complex corporate structures to hide their identities and obfuscate the sources of illicit funds. By understanding who the beneficial owners are, regulators and law enforcement agencies can better prevent and combat money laundering, tax evasion, and other financial crimes.
 

Who Needs to Report?

While there are some exceptions regarding who is required to file BOI information, such as sole proprietorships, as a general rule of thumb, you are required to file if you are a privately held corporation or flow-through entity, such as a partner in a partnership, limited partnership or limited liability company, an S corporation shareholder, or a corporation that is not publicly traded. Certain foreign corporations that are registered to do business in the United States are also required to file. While there are some exceptions to who is a reporting company, most of the exceptions to the reporting requirement are for financial institutions themselves, publicly traded companies, nonprofits, and certain large operating companies. Inactive companies are also exempt. A list of exempt entities can be found here.

If your business existed prior to January 1, 2024, you have until January 1, 2025, to report your beneficial ownership information. If your company was created or registered in 2024, you must report BOI information within 90 calendar days after receiving notice that your company’s creation or registration is effective. If your company is created on or after January 1, 2025, you have 30 calendar days (not business days) to report the BOI information after notice that the registration is effective. To make matters worse, any updates or corrections to your beneficial ownership information that you have previously filed must be submitted within 30 calendar days of the change. This includes changes of address for the partners or shareholders, changes in ownership percentages, appointing new directors, or even hiring new employees, such as promoting someone to CFO.
 

Who is a Beneficial Owner?

Beneficial ownership is defined as the true owner of an asset or a company, even if the title of ownership is held by another entity. This can include individuals who have the power to exercise control over a company, whether through direct or indirect means. For example, a person may own shares in a corporation through a trust or another corporate entity, making it difficult to trace the actual owner without proper reporting.

Beneficial owners are broadly defined and involve owners who directly or indirectly own at least 25% of the entity’s ownership interest or who exercise substantial control over the reporting company, even if they don't have an ownership interest. For example, this can also include officers or directors of the company, even if they are not stockholders. It can also include someone who is a senior officer, such as the company's president, CFO, general counsel, COO, or someone with the authority to appoint or remove certain officers. It also covers directors of the reporting company or anyone who is an important decision maker within the company or for the company, and anyone who can influence important decisions. If you're not certain if you should include someone, given the severity of the fines, it is better to err on the side of including any potential beneficial owners rather than not including them.

It should be noted that, in some cases, a spouse of a beneficial owner who has a community property interest in the ownership can also be a beneficial owner and must be included in the filing. This will depend on your state’s community property laws.

You'll also need to report information about the person who actually files the formation or registration papers with your state Secretary of State or equivalent agency, and the person primarily responsible for directing or controlling the filing of the documents. This is typically the company attorney, and your attorney may be willing to file the BOI information for you for a fee. Many CPAs, Enrolled Agents, and other tax preparers have decided that BOI reporting is too close to practicing law, however - so while you can check with that person, they may decline to do the reporting for you.
 

How do I report this Information?

The reporting must be done electronically through FinCen’s website.

The information that must be provided and kept current for these beneficial owners include the owner’s legal name, their residential address (this cannot be a P.O. box), date of birth, and a unique identifier number from a non-expired passport or U.S. passport card (domestic or foreign), driver’s license, or U.S. government or state identification card. You will also need to provide an image of any of these forms of documentation for all beneficial owners. If the owner's passport number, driver’s license, or other identifying documentation is replaced or renewed, either through expiration or replacement when the ID Is lost or stolen, that information will also need to be reported.

Anyone authorized to act on a company’s behalf, such as an employee, owner, or third-party service provider, may file a BOI report on the reporting company’s behalf. This does not need to be an attorney or an accountant, however. As mentioned earlier, many accountants will likely refuse to upload this information on your behalf.

The good news is that once you have filed the information, there is no annual reporting requirement. Reporting companies only need to update the BOI when something changes after the initial registration. But if you decide you want to hire someone to do this for you, proceed with caution. FinCEN has issued recent alerts about fraudulent attempts to solicit information from entities and individuals who may be subject to the reporting requirements and, with so much sensitive information needing to be submitted, you’ll want to vet any potential party offering these services thoroughly.
 

What Happens if I Don’t Report the Information?

The willful failure to report information or to update any changed information can result in significant fines. Failure to report beneficial owners by the January 1, 2025, deadline is subject to a penalty of up to $500 per day until the violation is remedied. This also applies for failing to report changes in BOI timely. If criminal charges are brought, the fines are up to $10,000 per day or up to two years imprisonment. These penalties can be imposed against the beneficial owners, the entity itself, or the person completing the report.

If you were impacted by the recent hurricanes that hit the American southeast, you may also have additional time to file.
 

Who Can Access the Information I Upload?

While you may be cautious about uploading sensitive personal information to FinCEN, access to the information is controlled. Under the law, FinCEN can permit access to law enforcement agencies at the federal, state, local, and tribal levels, officials at the Department of the Treasury, foreign law enforcement agencies that make a request to a U.S. agency, financial institutions performing due diligence under applicable laws, and federal regulators of financial institutions. BOI is exempt from disclosure under the Freedom of Information Act.
 

How Much Does It Cost?

There is no fee for submitting the BOI to FinCEN. However, if you pay a third party to upload the information, such as your attorney or accountant, there will likely be fees charged by that third party. FinCEN expects that most taxpayers can submit their information on their own rather than needing assistance from a professional.
 

This is So Confusing…

Facing the unknown is never any fun for anyone, particularly when the possibility of fines is hanging over your head. But FinCEN does have lots of resources available on its website, including an extensive FAQ. It also offers a chat feature on its website to address specific questions or concerns, and you can subscribe to its email notification system to stay up-to-date and informed on any changes.