Beginning January 1, 2024, there is a new Federal filing requirement for small businesses that comes with large civil and criminal fines and possible jail time for noncompliance. This new requirement comes from the Corporate Transparency Act passed in 2021 with the goal of collecting data to assist law enforcement agencies in combating the misuse of anonymous shell companies for illegal activities such as money laundering, tax evasion, and terrorism.
To be in compliance, all small businesses (S Corps & C Corps and LLCs) need to file a Beneficial Ownership Information Report (BOI) with the Financial Crimes Enforcement Network (FinCEN). Per the ruling, sole proprietorships and general partnerships are not addressed, but the general rule of thumb is if you file a document with the secretary of state or a similar state agency, then you are required to file the BOI report. There are 23 exceptions to the filing requirement that are listed at https://www.fincen.gov/boi/small-entity-compliance-guide.
If you own a small business that was formed prior to January 1, 2024 that has this filing requirement, the report needs to be filed on or before January 1, 2025. If your reporting company was formed after January 1, 2024, the report is required to be filed within 90 days of formation. Companies formed after January 1, 2025, need to file the report within 30 days of formation. Companies are required to file this form only once with FinCEN, but if there are any changes to the business or owner information, such as an address change, a new form is required to be filed within 30 days of the changes.
The BOI report is filed electronically on the FinCEN website at https://www.fincen.gov/boi. There is no fee to file this report and there is no state filing. The report requests information about the business, such as legal name and d/b/a names, address, jurisdiction of formation and taxpayer identification number. In addition to the business information, each beneficial owner of the company will have to provide their legal name, birthdate, home address, and an identifying number from a driver’s license, state ID or passport, as well as an image of the document. A beneficial owner is defined as any individual who, directly or indirectly, has substantial control over the company or who owns or controls 25 percent of the company.
Failure to comply with this reporting can result in the company and the individuals responsible being subject to hefty fines and/or jail time. The civil penalty can be up to $500 per day with annual adjustment for inflation as the violation continues. The criminal penalty can be up to two years imprisonment and a fine of up to $10,000.
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