The Beneficial Owner Information (“BIO”) reporting requirement is a mandate stemming from the Corporate Transparency Act (“CTA”), a component of the National Defense Act for Fiscal Year 2021. Unlike tax code regulations, the CTA falls under the Bank Secrecy Act, a set of federal laws governing financial transaction record-keeping and reporting. Under the CTA, countless entities must disclose their BOI to the Financial Crimes Enforcement Network (“FinCEN”), a Department of Treasury agency or risk substantial penalties.
The scope of this reporting requirement is broad, affecting most small corporations, limited liability companies, and partnerships. FinCEN anticipates a staggering 32.6 million filings in its inaugural year, with millions more annually thereafter. Determining whether a company must comply depends on whether it had to file formation documents with the state’s secretary. There are some exceptions, such as:
• an entity with more than 20 employees and gross revenue of over $5 million;
• tax exempt organizations;
• banks and credit unions;
• insurance agencies;
• a publicly traded company registered under Section 102 of Sarbanes-Oxley.
Understanding when to meet this filing obligation is a tricky aspect of BOI reporting:
• Existing entities formed through December 31, 2023 must file between January 1, 2024 to January 1, 2025;
• Entities created after January 1, 2024, or existing ones with owner information changes, face a challenging 90-day window for compliance. Important to note, a change in owner information could include home address, or telephone number.
Given the complexity and potential legal implications, it’s advisable for business owners to seek legal counsel on CTA requirements and BOI reporting. The consequences of willful noncompliance are severe, including
• Civil penalties of up to $500 per day for continued violations, and
• Criminal penalties including a $10,000 fine and up to two years of imprisonment for willful noncompliance
While we would like to assist our business clients on this issue, our Firm is technically prohibited because this reporting requirement is a legal matter. It is imperative business owners seek counsel and assistance from a knowledgeable attorney to ensure prompt navigation of this regulatory issue.
For more information, please visit the Financial Crimes Enforcement Network website on this topic at https://www.fincen.gov/boi.