A little known but highly impactful rule is taking place in 2024 that most businesses are not aware of. The Corporate Transparency Act requires that nearly all companies report their beneficial ownership information to the federal government (specifically, the U.S. Treasury’s Financial Crimes Enforcement Network – FinCEN). The rule is known as the BOI Rule.
The goal of the rule is to help reduce money laundering and tax fraud, but with little advertising, the 10+ million estimated businesses that are subject to it may not even know about it.
The rule sounds simple enough – business entities such as LLCs, S Corporations, C Corporations, Partnerships and other legal entities are required to submit certain ownership information to FinCEN such as the legal name and address of the company, jurisdiction of formation, Federal Employer ID Number, and the legal name, date of birth and address of all beneficial owners. Additionally, photo identification will be required such as a passport or driver’s license. If you are a small business owner and have any kind of legal entity, this rule applies to you.
Entities that are in existence as of December 31, 2023, have until December 31, 2024 to submit their report. Entities that are created during 2024 will have 90 days to submit their report, and entities created in 2025 and after will only receive 30 days to report.
Generally, companies only have to file once unless something changes in the future.
The Corporate Transparency Act imposes stiff penalties on intentional noncompliance in reporting, including up to $500 per day for failure to report, and a possible 2-year prison term.
According to FinCen, such information will “permit Federal, State, local and Tribal officials, we well as certain foreign officials who submit a requested through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.”
As of December 2023, FinCEN has not released any forms regarding the required reporting documentation, and no guidance has been issued regarding allowing third-parties (such as CPAs and Lawyers) to handle reporting on their clients’ behalf. As a result, many accountants and lawyers are declining to offer any reporting services until and unless formal guidance is issued that includes liability protections. Further, neither the American Institute of CPAs (AICPA) nor the American Bar Association has issued guidance on how to provide such services.
The AICPA and other concerned stakeholders have requested Congress and FinCEN to delay reporting requirements to help protect the millions of small businesses nationwide that are subject to this rule. However, as of the date of publication, no action has yet been taken.
Visit www.fincen.gov/boi for more information, including FAQs for small businesses and a small business compliance guide.