Reporting - Beneficial ownership interest (BOI)

Understanding Business Ownership Interest (BOI) reporting is essential for compliance and transparecy in the ever evolving landscape of global business. This guide outlines who needs to report, who qualifies as a beneficial owner, key deadlines, and penalties for late filing or willful non-compliance

Background

Beneficial Ownership Information (BOI) reporting has emerged as a crucial requirement aimed at enhancing transparency and combating financial crimes, such as money laundering and terrorist financing. The Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, spearheads this initiative under the Corporate Transparency Act (CTA), which was enacted as part of the National Defense Authorization Act (2021).

The primary objective of BOI reporting is to create a centralized database containing information about individuals who have significant control over or substantial interests in certain U.S. entities. This information aids law enforcement and regulatory agencies in tracking illegal financial activities and ensuring that the U.S. financial system is not exploited for illicit purposes.

Who is considered a reporting entity?

reporting entity for BOI purposes includes the following:

Corporations: U.S. and foreign corporations  doing business in the U.S.

LLCs: Limited Liability Companies operating  within or related to the U.S.

Other entities: any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe

Entities must assess their reporting obligations  based on ownership structure, the nature of  business activities, and specific regulatory  requirements.

Who is not considered a reporting entity?

Certain entities are exempt from BOI reporting obligations. Exemptions typically apply to entities that are already subject to substantial federal or state regulatory oversight. Exempted entities include:

  • Reporting entities with $5 million or more in annual gross receipts/sales in the prior year, 2023

  • Reporting entities with more than 20 employees

  • Publicly traded companies listed on a major U.S. stock exchange

  • Banks

  • Credit unions

  • Investment companies

  • Insurance companies

  • State-licensed insurance producers

  • Public utilities

  • 501(c)(3) charitable organization

  • Certain inactive entities

The rationale behind these exemptions is that these entities are already required to provide similar information to other regulatory bodies, thereby reducing the redundancy of reporting.

Who is considered a Beneficial Owner?

Under the CTA, a beneficial owner is defined as an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:

  1. Exercises substantial control over a reporting company.

  2. Owns or controls 25 percent or more of the ownership interests of a reporting company.

Beneficial owners are required to disclose their identity, full name, address, date of birth, picture/identification number from an active state mandated id card or passport, and the nature & extent (i.e. ownership %) of their ownership/control.

Due dates for required entities

BOI reporting must be timely and accurate to avoid penalties. Key deadlines include:

  1. Existing entities: Reporting entities that were registered before January 1, 2024 will owe BOI reports on or before January 1, 2025.

  2. New entities: Reporting entities formed or registered on or after January 1, 2024 will be required to file their initial BOI reports 90 calendar days after receiving actual or public notice that its creation or registration is effective.

  3. Updates and corrections: Any changes to the reported information must be updated within 30 calendar days of the change.

Penalties for not filing or filing late

Failing to comply with BOI reporting requirements can result in severe consequences, including:

  • Civil penalties: Non-compliance can result in civil penalties of up to $500 per day for each day the violation continues.

  • Criminal penalties: Willful failure to report complete or updated BOI, or submitting false or fraudulent information, can lead to criminal penalties, including fines up to $10,000 and imprisonment for up to two years.

  • Operational impact: Non-compliance entities may face operational restrictions, difficulties in conducting business, or reputational damage which can impede collaboration with stakeholders such as lenders.

To avoid these penalties, entities must ensure accurate and timely BOI reporting. It is highly recommended to leverage a tax or legal professional to maintain proper compliance.

Conclusion

BOI reporting under the Corporate Transparency Act is a step towards enhancing corporate transparency contributing to the integrity of the U.S. financial system. Entities must carefully evaluate their status to determine if they are subject to this reporting requirement. Understanding who qualifies as a beneficial owner and ensuring accurate reporting are essential to avoiding severe monetary and operational penalties.

Hagger Tax & Advisory is here to help you  navigate these complexities. 

Our expert team provides hands on assistance to ensure your BOI reporting is accurate and timely filed. 

Contact us today at

(305) 762-9587

or

chad.hagger@hagger-tax.com 

or

book a free consultation using the below link:

https://calendly.com/chad-hagger-hagger-tax/free-consultation

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