As a business owner, your to-do list might seem miles long. Add to that list a new government-mandated action item to prioritize by the end of the year. This new requirement—which could cost businesses up to $500 per day for a continuing violation—applies to many businesses in the U.S., but not everyone knows about it.
Meet the Beneficial Ownership Information (BOI) Reporting Rule, intended to combat bad actors hiding in shell companies. The Beneficial Ownership Information Reporting Rule requires businesses created before Jan. 1, 2024, to fill out paperwork and report it to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) by the end of the year.
“When I launched California Contractor Bond & Insurance Services and became president of Pacific United Insurance… I didn’t give much thought to the BOI reporting requirement,” says Michael Benoit, founder of California Contractor Bond & Insurance Services and President of Pacific United Insurance in San Diego. “It was one of those regulations that initially appeared insignificant—until it escalated into a significant concern.”
Similarly, Chris Bajda, an e-commerce entrepreneur and managing partner at GroomsDay, an online supplier of groomsmen gifts in Connecticut, says, “I have to admit that the BOI reporting requirement wasn’t always something that was on my radar. Like many small business owners, my focus was primarily on growth, customer service and operations—areas that directly impact the bottom line.”
Here’s what business owners need to know to prevent significant repercussions.
What is the Beneficial Ownership Information Report?
According to FinCEN, “Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company.”
The Corporate Transparency Act (CTA) enacted in 2021 created a law requiring reporting of beneficial ownership information. This helps the U.S. government make it harder for scammers to hide or benefit from shell companies or other scam structures. Brittany Turner, a CPA and CFP at Countless, says the CTA builds on the Anti-Money Laundering Act of 2020, which Congress passed to “crack down on illegal activity—like money laundering, corruption and tax fraud.”
“Advocates believe that increasing transparency in business ownership will help prevent criminals from hiding illegal gains, cash and other property in the U.S. And that’s where beneficial ownership information reporting requirements enter the chat,” she says.
Who is required to complete BOI reporting?
Two types of companies, known as “reporting companies,” are required to report. Per FinCEN’s website:
- “Domestic reporting companies are corporations, limited liability companies and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.”
- “Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.”
FinCEN states that 23 types of businesses are exempt from reporting, including many nonprofit organizations. They are listed on the FinCEN website as follows: Securities reporting issuers, governmental authorities, banks, credit unions, depository institution holding companies, money services businesses, securities brokers or dealers, clearing agencies or securities exchanges, other Exchange Act registered entities, investment companies or advisers, venture capital fund advisers, insurance companies, state-licensed insurance producers, Commodity Exchange Act registered entities, accounting firms, public utilities, financial market utility companies, pooled investment vehicles, tax-exempt organizations, organizations that assist a tax-exempt entity, large operation companies, subsidiaries of certain exempt organizations and inactive entities.”
Who can access this information?
Submitting sensitive information, whether it’s personal or business-related, should always necessitate the following questions: One, who is receiving this information? And two, who is responsible for keeping it secure? According to FinCEN’s website, the following groups may be permitted access to beneficial ownership information:
- Federal agencies conducting national security, intelligence or law enforcement activity
- State, local and Tribal law enforcement agencies with court authorization
- The Department of the Treasury
- Foreign law enforcement, judges, prosecutors and other authorities. (They must have a submitted request through a U.S. federal agency and be inquiring about activities relating to national security, law enforcement and intelligence.)
- Financial institutions with customer due diligence requirements under applicable law
- Federal functional regulators or other appropriate regulatory agencies that oversee financial institutions to ensure they are complying with customer due diligence requirements.
What are the consequences of not filing a BOI report?
Few mandates carry such a severe penalty. The penalties for not filing according to BOI reporting requirements are fines of up to $500 per day of continued violation. This amount is subject to inflation, and according to the most recently updated FinCEN FAQs, the amount is currently $591.
Additionally, according to FinCEN, the individual who “willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000.”
FinCEN lists potential violations of the BOI reporting requirement as “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.”
Why weren’t some business owners aware of the mandate?
Business owners report not being aware of the mandate until uncomfortably late in the year. “I’m honestly not sure how I was supposed to find out about it. I have both an accountant and an attorney that I work with, and neither one has mentioned anything,” says Rachel Lindteigen, president and founder of Etched Marketing Academy in Tucson, Arizona. “It was the HOA management company that told us we needed to do this for the board a few weeks ago that put it on my radar for the business, too.” She filed her paperwork recently and it was approved. But while she found it to be an “easy process,” she worries about how she’ll find out information regarding similar mandates in the future.
“I distinctly remember a deal that almost fell through because of it. One of our new institutional partners required full BOI compliance before moving forward, and we were missing some pieces. We scrambled to get the documentation in order, which nearly cost us the deal,” says Shaun Bettman, a mortgage broker at Eden Emerald Mortgages in Sydney, Australia. “Since then, we’ve incorporated BOI compliance checks into our onboarding process to make sure it never slows us down again.”
Businesses can find more info on BOI reporting on the FinCEN website. They have a thorough FAQs page where you’ll find many answers to the most common questions.
Photo courtesy of PeopleImages.com – Yuri A/Shutterstock
