Prepare Now – Save Money Later.
If you’ve been paying attention (or even if you haven’t) there is a lot of talk and posts about Financial Crimes Enforcement Network’s (FinCEN) Beneficial Ownership Information (BOI) reporting requirement starting in 2024. Non-compliance can be costly with civil and even criminal penalties. It’s not an exaggeration.
This topic has been confusing to many business owners and individuals responsible for company compliance. Why? Because for those who weren’t dialed into this it seemed to come out of nowhere. It didn’t.
Yes, it’s another form that has to be submitted to a government agency. Yes, it’s a pain in the butt to have one more thing to track.
But while it may appear to be a hardship for small businesses, it really isn’t. Matter of fact, you may have already completed a Certification of Beneficial Owner(s) form when you applied for a business account with your bank.
We’ve gotten questions about this required reporting from some of our clients and potential clients. Keep in mind that this is high level and each company needs to do their own due diligence to ensure they know if they’re required to submit the reporting.
What is BOI Reporting and why is it necessary?
FinCEN introduced the BOI Reporting requirements to enhance transparency in business ownership. It aims to prevent financial crimes through the transparent ownership. This all stems from a growing global concern about financial crimes, particularly money laundering, tax evasion, and terrorist financing. It also helps in creating a fair business environment where companies operate on a level playing field.
The Corporate Transparency Act (CTA), passed as part of the National Defense Authorization Act in 2021, is the primary legislative force behind these new reporting requirements. The CTA was a response to the growing need to close loopholes in the US financial system that allowed illicit activities to go undetected. Increasing Financial Transparency: Over the years, there has been a concerted international effort to increase financial transparency. The use of shell companies and other opaque corporate structures has been a significant hurdle in tracking illegal financial activities. By requiring companies to report their beneficial ownership, FinCEN aims to peel back layers of anonymity that can hide illicit activities.
Why is this important? My business is aboveboard.
Most businesses operate within the law so this might seem like this is another reporting requirement that “takes time away from running and growing the business.” While feeling like this may be valid, regardless, this is a requirement and it’s not optional.
BOI reporting should be a priority for every business that is required to file the report. If you’re a company that tends to be lax about filing dates and deadlines, then you need to change your attitude and behavior. This deadline is not one to miss because doing so will be expensive.
What are the penalties and consequences for not filing a BOI report or filing late?
We alluded to the penalties in the blog title. We expanded on it in this and the next section and included some of the consequences for not completing and submitting the required BOI reporting. So it’s a good time to read these bullets carefully.
In a nutshell, failure to file the report in a timely manner or filing an incorrect or incomplete report can result in substantial financial penalties and even criminal charges. There are also other potential consequences for the business and potential personal liability.
- Financial Penalties: Fines for non-compliance can be significant. Businesses that fail to report their beneficial ownership information or report inaccurate information can face civil penalties. While the exact amount can vary, they can be hefty and impose a considerable financial burden on a business.
- Criminal Penalties: In cases where non-compliance is found to be willful, criminal penalties can apply. This means that if a business knowingly fails to report accurate information or deliberately submits false information, the responsible individuals could face criminal charges. These charges can include prison terms in addition to financial fines.
- Additional Consequences: Beyond the direct financial and criminal penalties, non-compliance can also lead to other consequences. These can include damage to the business’s reputation, loss of business opportunities, and put existing and future relationships with banks and other financial institutions in jeopardy. Non-compliance could potentially trigger investigations into other aspects of a business’s operations.
- Impact on Business Operations: Dealing with the fallout of penalties and legal proceedings could be disruptive to normal business operations. This diversion of resources and attention from regular business activities could impact the business’s overall performance and profitability.
- Personal Liability: It’s also important to note that liability can extend to the individuals responsible for the non-compliance within the business. This can mean personal legal and financial repercussions for business owners, officers, or other key individuals.
Did you say civil and criminal penalties?
Yep. And it’s laid out in the Corporate Transparency Act, which says a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. That person may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
It cannot be stressed enough for business owners to be aware of these potential consequences and ensure timely and accurate compliance with the FinCEN reporting requirements to avoid such penalties. The exact penalties can vary based on the specifics of the non-compliance, so staying informed and seeking professional advice if needed is advisable.
Now do we have your attention?
Not every business is subject to the BOI reporting requirements. Typically, they apply to corporations, LLCs, and other entities created by a filing with a state office or similar business entities formed under foreign law. And it may include sole proprietors so don’t think you get an automatic free pass.
Do your homework or get help from a professional before making a determination that you aren’t required to submit a BOI report. If you have multiple businesses, getting a pass for one may not mean you don’t have bound by the BOI reporting requirements for another business.
The first step to compliance is understanding whether your business falls under these regulations. The FinCEN website has a FAQs page. Section C has details about the reporting company including who is required to file a BOI and who is exempt. The FAQs page is available here (https://www.fincen.gov/boi-faqs).
What do I need to know about BOI reporting compliance?
The information in the BOI report should be readily available. If you don’t have this information, that’s a different situation that we can talk about in a separate conversation. What you will need is to:
- Identify Beneficial Owners and Company Applicants: Determine who meets these criteria in your company.
- Collect Necessary Information: This includes personal details for both beneficial owners and company applicants.
- File the Report: Submit the information to FinCEN.
- Update Records: Regularly update the information if there are changes.
It seems straight forward; however, you want to ensure that you avoid errors such as incorrect identification of individuals, incomplete information, and missing deadlines by maintaining accurate records and understanding the criteria thoroughly.
Key definitions
There are 3 terms that appear when talking about the reporting requirements — beneficial owners, reporting companies, and company applicants. What does that actually mean?
- Beneficial owners are individuals who own 25% or more of the equity interests of a company or exercise substantial control over it.
- Reporting companies are the entities required to submit information about these owners.
- Company applicants are the individuals who file the document that creates or registers the reporting company. This includes information about the applicant’s name, birthdate, address, and a unique identifying number.
What are the key BOI reporting dates?
There are several key dates for BOI reporting. These are not the only dates, so ensure that you’ve reviewed the requirements to determine if you have any other required BOI reporting deadline(s).
- Reporting requirement effective date: FinCEN will begin accepting BOI reports on January 1, 2024. Reports cannot be submitted prior to that date.
- Due date for new reporting companies:
- Companies that are formed on January 1, 2024 and before January 1, 2025 must report their BOI within 90 calendar days after receiving “actual or public notice that their company’s creation or registration is effective.”
- Companies that are formed on or after January 1, 2025 will have 30 calendar days from notification of actual or public notice that their creation or registration is effective.
- Due date for existing reporting companies: Companies that were formed before January 1, 2024, must report their BOI by January 1, 2025.
- Due date for company changes: If a company has to file an updated report, it must be done within 30 days of a change occurring.
Need more help with BOI reporting compliance?
If you still need help, additional BOI reporting guidance is available on FinCEN’s website (https://www.fincen.gov/). They have professional advisors who can provide personalized assistance.
There is also a BOI Reporting FAQs page (https://www.fincen.gov/boi-faqs). We suggest visiting the webpage as there is more detailed information.
You can also seek help and guidance from your business attorney, your resident agent (providing they have the experience and expertise to help with this), or a reputable consultant – like Tripod Coaching & Consulting™.
Word of warning: since it became clear that the BOI reporting requirements were on the horizon, there have been a lot of companies and consultants saying how they can help with this “for a nominal charge.” An alert was put on FinCEN’s BOI reporting webpage that said the following:
Alert: FinCEN has been notified of recent fraudulent attempts to solicit information from individuals and entities who may be subject to reporting requirements under the Corporate Transparency Act. The fraudulent correspondence may be titled “Important Compliance Notice” and asks the recipient to click on a URL or to scan a QR code. Those e-mails or letters are fraudulent. FinCEN does not send unsolicited requests. Please do not respond to these fraudulent messages, or click on any links or scan any QR codes within them.
Many of these companies were and are created to take advantage of this potential cash cow. Our advice is to do your homework. A key tell is this is the only work they do, and their company is fairly new. Remember, you as the business owner and the business are on the hook to ensure this is done right and timely. Don’t take chances with an individual or company who will likely disappear at the first sign of trouble.
Complying with FinCEN’s Beneficial Ownership Reporting requirements is crucial for corporate transparency and integrity. Stay informed and proactive in your compliance efforts for business success and reputation.
We understand that these regulations can affect business operations, especially regarding record-keeping and administrative processes. It’s important to allocate resources and time for ongoing compliance. If you don’t have procedures in-place, now is the time to get this done. If you don’t know where to start, then send a message through our contact page and we’ll follow up. Don’t wait! Time is of the essence!
Need help with next steps or have questions about this topic?
We’ve included a lot of information in this post. And it’s not just industry that is confused about the details. This is something you don’t want to get wrong. Planning for the “What If”™ is what we do. Get in front of this requirement and don’t wait to submit the BOI report if you’re required to do so. Time will go faster than you think and it provides an opportunity for you to forget to do it. Not submitting a complete, accurate, and timely BOI report can create a big “oh sh*t” moment. Mitigating it in advance is easier and also more cost effective.
If you need help, please reach out via the contact page. We can set up a call to talk and we’ll develop a initial strategy based on our initial conversation.
We’re also happy to answer questions about this post. Leave us a note in the comment section, or reach out on the contact page.