LATEST UPDATE: On December 23, 2024, a federal appellate court lifted a nationwide preliminary injunction on Beneficial Ownership Information (BOI) reporting. FinCEN then said the deadline for BOI action for reporting companies that were created or registered prior to January 1, 2024, would be January 13, 2025. Three days after the appellate court ruling, another panel in the same appellate court reinstated the injunction, and FinCEN reverted to voluntary submissions. On December 31, 2024, the DOJ filed an emergency application with the U.S. Supreme Court asking that the injunction be lifted while an appellate court determines whether the Corporate Transparency Act (CTA), which created BOI reporting, is constitutional. On January 23, 2025, the Supreme Court issued a stay, effectively lifting the nationwide injunction, but there are other cases pending. What’s more, a bill in Congress would repeal the CTA. In view of ongoing litigation, as of January 24, 2025 (after the Supreme Court ruling) FinCEN still says registration is voluntary. Continue to monitor developments.
Alert: Update on BOI reporting
On December 23, 2024, a federal appellate court lifted a nationwide preliminary injunction imposed on December 3, 2024, that had barred enforcement of the Corporate Transparency Act (CTA). That law requires corporations and LLCs not otherwise exempt to register with the Treasury at FinCEN… Beneficial Ownership Information (BOI) reporting. FinCEN says: In light of a December 23, 2024, federal Court of Appeals decision, reporting companies that are not exempt are once again required to file beneficial ownership information with FinCEN. Reporting companies that were created or registered with their state prior to January 1, 2024, have until January 13, 2025, to file their initial BOI reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
Note: There are cases in other courts challenging CTA that are still pending and Congress could change the law, so stay alert to further developments.
The federal government recognizes that “illicit actors frequently use corporate structures such as shell and front companies to obfuscate their identities and launder their ill-gotten gains through the U.S. financial system.” To enable the government to catch and penalize these bad actors—drug dealers, money launderers, foreign operatives, and others—the Corporate Transparency Act (CTA) of 2021 imposes a reporting rule for the owners of many small businesses. Starting in 2024, the government will require registration of many entities so it can maintain a national registry of beneficial owners. Here’s what you need to know.
Overview
Any “reporting company,” domestic or foreign, must disclose to the federal government its beneficial owners. A reporting company is one that registers with a state to do business. This means corporations—C or S—and limited liability companies, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, regardless of size, are subject to this requirement. It doesn’t apply to sole proprietorships, independent contractors, and general partnerships. A beneficial owner is any individual who, directly or indirectly, either exercises substantial control over a reporting company or owns or controls at least 25% of the reporting company’s ownership interests.
The Beneficial Ownership Information (BOI) reporting rule is designed exclusively for small businesses. There are 23 exempt categories exempt from reporting, most notably “large operating companies.” These are companies employing more than 20 employees on a full-time basis in the U.S., having more than $5 million in gross receipts, and having an operating physical presence at a physical office within the U.S.
What to report
The company submits the information electronically to FinCEN through the FinCEN BSA E-Filing system, listing:
- The individual’s full name
- Date of birth
- Current residential or business street address
- Unique identifying number from an acceptable identification document, such as a driver’s license or passport or a FinCEN identifier (a unique number issued to an individual upon request).
The Treasury is developing a portal for BOI reporting. It is not yet up, but check FinCEN’s BSA E-Filing portal for any update.
When to report
This registration begins January 1, 2024. Existing businesses have one year to register (i.e., any time during 2024). Newly formed businesses must do so within 30 days of formation.
If there is a change in beneficial ownership of a company, a new registration must be filed. For this purpose, the 30 days starts at the earlier of the date on which the reporting company receives actual notice that its creation (or registration) has become effective; or a secretary of state or similar office first provides public notice (e.g., through a publicly accessible registry), that the domestic reporting company has been created or the foreign reporting company has been registered.
Penalties for noncompliance
Failure to comply with this obligation can result in severe penalties:
- Civil penalties of $500 per day ($10,000 maximum penalty)
- Criminal penalties of up to 2 years imprisonment.
Final thought
Small business groups are hoping that Congress will repeal the rule, or at least delay it. Testimony from the NFIB this past July before the House Committee on Financial Services Subcommittee on National Security, Illicit Finance, and International Financial Institutions explains the concerns about the rule, which is expected to affect 32.6 million small businesses in the first year and 5 to 6 million small businesses every year thereafter.
Whether Congress will take any action or the Treasury will do anything to ameliorate the rule is uncertain (unlikely?). So, be prepared. You can review the Small Entity Compliance Guide on the BOI reporting rule.
Update: FinCEN has proposed an extension to the filing rule for new reporting companies to 90 days (instead of 30 days) for 2024.
Find more blogs regarding information reporting for small businesses here.
