Beneficial Ownership Information (BOI) refers to essential details about individuals who ultimately own or control a legal entity. This information typically includes names, addresses, and ownership percentages. Being aware of this information can aid authorities in combating financial crimes by identifying the actual individuals behind the entities at issue.
Effective January 1, 2024, the Financial Crimes Enforcement Network (FinCEN) has mandated that most legal entities, both domestic and foreign, must report their BOI. Businesses existing before this date must file BOI reports by January 1, 2025, while those formed after January 1, 2024, have 30 days from registration to comply. However, specific exemptions exist for 23 entity types, and strict penalties, including a $500 daily civil fine, apply for willful non-compliance and unauthorized disclosures.
If you need help complying with these new requirements, seek support and guidance from the experienced tax CPAs at US Tax Help by calling (541) 362-9127.
FinCEN Announced New BOI Reporting Requirements
As previously mentioned, as of January 1, 2024, FinCEN requires that most legal entities, domestic or foreign, will have to report their BOI.
Here is how this new filing requirement can impact a business:
- Existing LLCs, Corporations, and business entities with an effective filing date established prior to January 1, 2024, are required to file a BOI report by January 1, 2025.
- LLCs, Corporations, and business entities created on or after January 1, 2024 must file a BOI report within 30 calendar days of their registration or formation with the Secretary of State’s office.
- This Reporting Rule exempts twenty-three (23) specific types of entities and certain large corporations as outlined in the Small Entity Compliance Guide provided by FinCEN
Strict penalties can be imposed for willful non-compliance and unauthorized disclosures, including but not limited to a civil penalty of $500 for each day that the violation continues.
Fortunately, our tax CPAs can facilitate this filing requirement for you and your clients on behalf of the entity starting January 1, 2024. Further, as FinCEN continues to roll out new guidelines, we will continue to keep you appraised of all updates.
It is important to note that FinCEN will not initiate unsolicited requests. If you receive any messages requesting information from FinCEN, kindly refrain from responding, clicking on links, or scanning QR codes as it they may be a scam.
Failing to Report Beneficial Ownership Information
When a company neglects to report BOI within the stipulated timeframe, it triggers consequences under the Corporate Transparency Act. Individuals with reason to suspect inaccuracies in a FinCEN report have the opportunity to rectify them within 90 days of the initial deadline, securing a safe harbor from penalties. However, intentional non-compliance with reporting requirements necessitates FinCEN to consider enforcement actions.
Penalties for Willful Non-Compliance
The willful failure to report comprehensive or updated BOI to FinCEN, along with providing false or fraudulent information, carries significant penalties. Violators may face civil repercussions, encompassing daily fines of up to $500 for each continuing violation. Criminal penalties, including imprisonment for up to two years and a fine of up to $10,000, are also possible. Notably, senior officers of an entity failing to file required BOI reports may be held accountable for this lapse.
False Information and Accountability
Supplying false or fraudulent beneficial ownership details extends beyond direct reporting violations. This includes misrepresentation in BOI reports, such as furnishing fraudulent identification documents. Individuals deliberately obstructing the filing of required BOI reports or influencing companies to submit incomplete or false information can face civil and/or criminal penalties. For instance, a beneficial owner may withhold crucial information, knowingly hindering the company’s ability to provide complete details to FinCEN. Likewise, individuals providing misinformation to a company, aware of its intended submission to FinCEN, may also be subject to legal consequences. Understanding and adhering to these reporting obligations are crucial to avoid potential legal repercussions.
Identifying Beneficial Owners
For reporting companies, beneficial owners are defined as individuals who exert significant control over the company or own/control a minimum of 25 percent of its ownership interests. This ownership can result from substantial control, ownership interests, or both, with reporting companies not obligated to specify the basis of an individual’s beneficial ownership.
A reporting company may have multiple beneficial owners, including those with substantial control and others with at least 25 percent ownership interests. FinCEN anticipates that each reporting company will have at least one beneficial owner, and the forthcoming sections guide companies in determining and reporting this information. If an individual qualifies as a beneficial owner, their details must be included in the company’s Beneficial Ownership Information (BOI) report submitted to FinCEN.
What is Substantial Control in the Context of Beneficial Ownership Information?
As previously discussed, beneficial owners can be defined as those who have “substantial control” over an entity. Determining what constitutes substantial control can be a somewhat complicated task.
Reporting companies should pinpoint all individuals exercising substantial control over the organization. There’s no restriction on the number of individuals reportable for holding substantial control. An individual is deemed to exercise substantial control if they fulfill any of four overarching criteria: (1) serving as a senior officer; (2) possessing the authority to appoint or remove specific officers or a majority of directors; (3) being a key decision-maker; or (4) wielding any other form of substantial control over the reporting company. Fortunately, our CPAs can offer crucial assistance when seeking to identify parties with substantial control over a specific entity.
What is an Ownership Interest in the Context of Beneficial Ownership Information?
On the other hand, we also know that beneficial owners can be identified as individuals who own or control a minimum of 25% of an entity’s ownership interests.
Ownership interests within a reporting company encompass a range of financial instruments and privileges. These may include equity, stock, or voting rights, capital or profit interests, convertible instruments, options, and other non-binding privileges for buying or selling these assets. Additionally, any instrument, contract, or mechanism utilized to establish ownership falls under this category. You should note that reporting companies may possess multiple types of ownership interests.
Call Our Offices Today for Tax Guidance
Get assistance from the experienced tax CPAs at US Tax Help by dialing (541) 362-9127.
