The Financial Crimes Enforcement Network mandates that most small businesses submit the BOI Report under the Corporate Transparency Act. This act enhances business ownership’s transparency and prevents illicit activities such as fraud detection and money laundering. Understanding the BOI reporting process is crucial, and knowing when and how to proceed with it is also essential to meeting FinCEN compliance. This article provides a complete solution to BOI reporting requirements, specific conditions, and deadlines.
What is the BOI Report?
The Beneficial Ownership Information (BOI) Report provides detailed information about the business’s ownership structure and significant control over the reporting company. It contains certain details such as the reporting company, the beneficial owners, and the company applicants.
Who is required to file the BOI report?
“Reporting Companies” must file BOI report with FinCEN. The companies come into two categories:
- Domestic Reporting companies: Formed under the United States tax laws (examples include LLCs, corporations, and partnerships)
- Foreign Reporting companies: Formed outside the United States but doing business or trade under the U.S. tax law
Which entities are exempt from the reporting requirements?
The FinCEN classifies 23 types of entities as exempt from the reporting requirements.
The 23 exemptions are:
- Securities reporting issuer
- Governmental authority
- Bank
- Credit union
- Depository institution holding company
- Money services business
- Broker or dealer in securities
- Securities exchange or clearing agency
- Other Exchange Act registered entity
- Investment company or investment adviser
- Venture capital fund adviser
- Insurance company
- State-licensed insurance producer
- Commodity Exchange Act registered entity
- Accounting firm
- Public utility
- Financial market utility
- Pooled investment vehicle
- Tax-exempt entity
- Entity assisting a tax-exempt entity
- Large operating company
- Subsidiary of certain exempt entities
- Inactive entity
Are homeowners associations qualified as reporting companies?
If the IRS recognizes the HOA as a 501(c)(4) social welfare organization, it qualifies for exemptions from reporting requirements. If not, it must submit the BOI report to FinCEN.
What information should be provided in the BOI report?
Companies need to provide the following information in the BOI report:
- Type of filing: Initial, Corrected, Updated, or Newly exempt entity
- Reporting Company Information: Name, trade name or DBA, type of business, and EIN
- Beneficial Owner Information: Name, Date of Birth, Address, Unique Identifier, and Images of the acceptable documents
- Company Applicant Information: Name, Date of Birth, Address, Unique Identifier, and Images of the acceptable documents
Who is known as the company applicant?
The company applicant must be a person responsible for filing the papers to register the reporting company with the secretary of state or a similar office. A company can have at most two applicants. Legal entities or organizations cannot qualify as company applicants.
Can a Lawyer or Accountant be considered a company applicant?
Yes, a lawyer or accountant can be considered a company applicant, depending on their involvement in filing the paper to create or register a reporting company.
Who is the beneficial owner?
The beneficial owner is an individual or entity that has substantial control over a reporting company or owns or controls more than 25% of the ownership interest in a reporting company, either directly or indirectly.
Is each member of the company’s board of directors also the beneficial owner?
No, not every board of directors member is considered a beneficial owner. A beneficial owner is an individual who either directly or indirectly controls a significant part of the reporting company or owns or controls 25% or more of the company’s ownership interest.
Does a company have to provide details about its parent or subsidiary companies?
Reporting companies don’t have to report information about their parent or subsidiary companies. If beneficial owners hold ownership through an exempt parent company, they can report the parent company’s name instead.
What information should a company report about a beneficial owner who holds ownership interests through multiple exempt entities?
If a beneficial owner owns or controls their ownership interests solely through multiple exempt entities, those entities can be reported to FinCEN instead of the individual’s information.
Should a company submit its BOI report if it ceases to exist before January 1, 2024?
If a company no longer exists before January 1, 2024, it is not required to submit the BOI report. If the company is still a legal entity on or after January 1, 2024, it must adhere to the BOI reporting requirements.
How to determine if the company has ceased to exist?
When a company is considered “ceased” it depends on the jurisdiction’s legal requirements where it was created or registered. If a company is administratively suspended or dissolved due to non-payment of fees, it does not necessarily mean that the company has ceased to exist unless the dissolution or suspension is permanent.
What steps must a company take to be regarded as having ceased to exist?
A company takes the following steps:
- File dissolution paperwork within its jurisdiction
- Receive written confirmation of dissolution
- Pay related taxes or fees
- Cease conducting business
- Wind up affairs, such as liquidating assets and closing bank accounts.
What type of TIN should a disregarded entity report if it qualifies as a reporting company?
A disregarded entity that meets the definition of a reporting company must submit the BOI report and provide any one of the following types of TIN (Taxpayer Identification Number):
- Employer Identification Number (EIN)
- Social Security Number (SSN)
- Individual Taxpayer Identification Number (ITIN)
Do I have to change the BOI report if the beneficial owner’s ownership interest changes?
No, you don’t need to update the BOI report if a beneficial owner’s ownership interest changes unless the information about the reporting company or its beneficial owners changes.
When is the deadline, and what are the penalties for not submitting the BOI report?
The deadline for BOI filing depends on the company’s formation date:
- Established before January 1, 2024 – Report submitted by January 1, 2024
- Established on or after January 1, 2024 – Report submitted within 90 calendar days
- Established on or after January 1, 2025 – Report submitted within 30 calendar days
Failure to submit will result in civil penalties of up to $591 per day and criminal penalties of up to $10,000 or up to two years of imprisonment.
Conclusion
Understanding the BOI report is crucial for complying with the Corporate Transparency Act (CTA) and enhancing transparency to combat illicit activities. These FAQs clarify the BOI reporting requirements, deadlines, and procedures. By grasping these key points, businesses can avoid penalties and maintain compliance.
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