Recently, we wrote about a new requirement of the Financial Crimes Enforcement Network (FinCEN), under the U.S. Department of the Treasury, known as the Beneficial Ownership Information (BOI) reporting rule. The goal of the BOI Reporting Rule is to prevent illegal activities such as money laundering, tax evasion, terrorist financing, and other activities that can be disguised as legitimate small businesses.
In today’s post, we’ll go over the steps you need to take to ensure your company is in compliance with the new reporting requirement.
Step One: Determine Company Eligibility
The rule defines “reporting companies” as those formed in the U.S. or foreign entities registered to do business in the U.S. by filing with a secretary of state or equivalent office.
However, there are 23 categories of exemptions. These include public companies, some regulated businesses such as banks and insurance companies, and large operating companies, defined as those with at least 20 full-time employees that have a physical office in the United States and filed Federal income tax information or a return in the previous year with more than $5 million in gross receipts or sales.
Some domestic entities such as statutory trusts, business trusts, or foundations, are considered reporting companies only if they were created by filing with a secretary of state or similar office. The requirements for these companies to file vary from state to state.
Step Two: Determine your company’s beneficial owner(s)
A beneficial owner is any individual who, directly or indirectly:
- Exercises substantial control over a reporting company. This could include senior officers, board members, or other individuals who have substantial control or influence over company decisions.
- Owns or controls at least 25% of the ownership interests of a reporting company. Ownership interests include stock, equity, voting rights, capital or profit interest, convertible instruments, options or privileges, or other instruments or arrangements used to establish ownership.
FinCEN expects that every company will have at least one beneficial owner, but some companies will have multiple beneficial owners who are required to be reported. More detail about who is considered to have “substantial control”
Step Three: Gather Information
BOI reports require information about the company and its beneficial owners. If the company was formed after January 1, 2024, it must also include information about the person(s) who filed the document that created the company, known as the “company applicant.”
Required Company Information
- Legal name
- Trade name or doing business as (DBA) name
- United States address
- State, Tribal, or foreign jurisdiction of formation
- IRS TIN
- IRS EIN
Required Beneficial owner and company applicant information
- Full legal name
- Date of birth
- Residential address (business address for company applicants)
- Identifying number, issuing agency, and image of one of the following non-expired documents:
- United States passport
- Driver’s license
- Identification document issued by state, local government, or tribe
- Foreign passport (only if one of the first three documents can’t be obtained
Step Four: Obtain FinCEN Identifier(s)
A FinCEN identifier is not required but may simplify the process. Beneficial owners and company applicants can apply for FinCEN identifiers online, using the information gathered in Step Three. Once an individual has obtained a FinCEN identifier, they can submit it to their companies to be used in BOI reports in place of the required personal information.
An entity can apply for an identifier when it submits its BOI report.
Step Five: Submit Report
A company can designate an employee, owner, or third-party service provider to file a BOI report on its behalf. Individuals who submit the report will need to provide their name and contact information. BOI reports can be submitted to FinCEN through the BOI E-Filing System.
Step Six: Stay on Top of Updates
Reporting companies are required to update their BOI report within 30 days of any changes to the company or beneficial owner information (company applicant information does not need to be updated after the initial report is filed).
Examples of changes that would require an update include:
- Registering a new DBA
- A change in beneficial owners, such as a new Chief Executive Officer
- A sale that changes who meets the ownership interest threshold of 25%
- The death of a beneficial owner
- Any change to a beneficial owner’s name, address, or unique identifying number provided in a BOI report.
Companies that exist as of January 1, 2024, must file their initial BOI report by January 1, 2025.
Companies created or registered to do business in the United States on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving actual or public notice that their creation or registration is effective to file their initial BOI report
More details about BOI reporting can be found in FinCEN’s Compliance Guide. If you are unsure if your company qualifies as a reporting entity for BOI or have other questions, please call us or your tax advisor at Tonneson + Co.
If you’re interested in working with Tonneson + Co, please reach out to us. We look forward to hearing from you!
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