In 2021, the federal government enacted the Corporate Transparency Act which will go into effect at the beginning of 2024. The purpose of the Act is to fight money-laundering and other criminal enterprises that use business entity formation (such as LLC’s) as a method to hide the identity of criminals. This Act, however, has far-reaching consequences for small business owners as it imposes mandatory reporting requirements with the federal government related to your small business.
The Act requires most small businesses to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury. It is extremely important that you comply with this Act as failure to do so can lead to significant civil and criminal penalties which include, but are not limited to, a civil penalty of $500 per day for each day that the violation continues up to $10,000.00 and/or imprisonment for up to two years. Although there are twenty-three separate exemptions to the reporting requirement (such as for charitable organizations), the exemptions are very narrow and most privately owned small businesses will not meet an exemption and be required to file a report.
What is required in a BOI Report? First, the report must include company information: (1) the company’s full legal name, (2) any trade or “doing business as” names, (3) complete current street address of the principal place of business, (4) jurisdiction of formation, and (5) taxpayer identification number.
Second, and more intrusively, the BOI Report requires information on all beneficial owners of the Company The information required to be reported for beneficial owners includes: (1) full legal name, (2) date of birth, (3) complete current residential street address, (4) unique identifying number and the issuing jurisdiction from either a current (i) U.S. passport, (ii) state or local ID document, (iii) driver’s license, or (iv) if the individual has none of those, a foreign passport, and (5) an image of the document from which the unique identifying number was obtained. And yes, you read this correctly, an image of each owner’s/applicant’s identification document must be uploaded into the system to be fully compliant.
Unfortunately, the initial BOI Report is not a one-time reporting requirement. Although this is not an annual report, there is an ongoing obligation to update when information changes. Every time there is a change or correction to reported information, the reporting company must file an updated report. This includes a change in ownership, a change in an owner’s name (i.e. – owner gets married and changes their last name), change in address, etc. For example, a change in a corporation’s officers would likely trigger the need to file a new BOI Report.
As the reporting requirements begin on January 1, 2024, we are strongly suggesting that our clients contact us to make arrangements for our office to complete the reporting requirements for your company. As of the writing of this memo, the federal government has not yet created the forms for reporting this information, but it has provided certain guidance as to the information that will be required. As such, our office has developed a list of questions that can be answered to determine if your small business is subject to the reporting requirement or if you meet one of the exemptions.
One estimate anticipates that more than 32,000,000 small businesses will be effected by this reporting requirement. As such, due to the anticipated heavy workload that the reporting requirement will create, we ask each of you to contact us as soon as possible in order to prepare for this filing.