What Small Business Owners Need to Know About FinCEN’s Beneficial Owner Information Filing Requirements

by | Mar 19, 2024 | Small Business, Tax Advice

A significant development in regulatory compliance is upon us that will impact millions of small businesses nationwide. The Corporate Transparency Act (CTA), effective as of January 1, 2024, mandates that businesses must submit details about their beneficial owners—that is, the people who own or have significant control over the company—to the Financial Crimes Enforcement Network (FinCEN). The purpose of this Beneficial Owner Information (“BOI”) filing requirement is to increase transparency and bolster efforts to combat financial crimes, including money laundering and terrorist financing. 

Who Must Comply?

Most U.S.-registered or formed entities need to comply unless exempt. Notably, the CTA focuses on smaller entities, with exemptions for large corporations, nonprofits, and regulated entities.  For example, entities that employ more than 20 full-time employees are generally exempt, but an LLC with a single owner and no employees must generally comply with the reporting requirements. 

Reporting Requirements

FinCEN defines a beneficial owner as an individual who exercises substantial control over the company or owns or controls at least 25% of the company’s ownership interest. The information that must be disclosed for each beneficial owner includes their full legal names, dates of birth, addresses, and unique identifying numbers from an acceptable document (like a passport or driver’s license). Additionally, a photocopy of the identification document for each owner must be submitted. 

The filing must be completed online at www.fincen.gov/boi.

Deadlines and Penalties

The good news is, the initial filing deadline for entities that existed prior to December 31, 2023 is December 31, 2024.  However, entities created in 2024 have just 90 days to complete the initial filing.   For instance, a business created on December 30, 2023, has until December 31, 2024, to complete its initial filing. However, a business formed on January 2, 2024, must complete their initial filing by the end of March 2024.

After the initial filing, updates must be reported within 30 days of any change.  Penalties for willful non-compliance start at $591 per day!

Recent Legal Developments

A pivotal ruling last week by a U.S. District Court judge found the CTA unconstitutional, citing an overreach of Congress’s legislative powers. However, this decision only applies to the plaintiffs in the case – members of the National Small Business Association. All other entities are presumed to be subject to the compliance requirements, at least for now.  

Should You File Now?

Because of the uncertainty regarding the constitutionality of this new law, entities that qualify for the 12/31/2024 deadline may want to take a “wait and see” approach and hold off on preparing their initial filing until later in the year.  

However, entities formed in 2024 that are subject to the 90 days filing deadline should consider filing within 90 days of the entity formation date.  Not filing could result in late filing penalties if no further relief is provided by another court or Congress. 

Can Our Firm Assist?

We are currently awaiting guidance from insurers and other stakeholders on how accounting firms can assist clients with BOI filings without venturing into the unauthorized practice of law. After all, this is not a tax or accounting matter, but rather a regulatory/legal one.  

Initial guidance has indicated that accounting firms will be able to assist, at least with entities where the beneficial owners are easy to identify. We hope to know more in the coming months. 

Get Familiar with the Requirements

FinCEN offers an extensive FAQ at fincen.gov/boi-faqs. If you are a business owner, we highly recommend that you spend some time reviewing the information on this site. Understanding and complying with these new filing requirements is ultimately each business owner’s responsibility.  We will keep you updated on any further developments, as well as the possibility of us offering filing assistance.

Schanel & Associates is a CPA firm specializing in accounting, tax, and business valuation serving Palm Beach, Martin and St. Lucie Counties and beyond since 1993. Our CPAs and accounting professionals work with individuals, businesses, estates and trusts to provide everything you need under one roof. For more information, contact us today at 561-624-2118.