If you’re running a business, you might want to mark your calendar for 2024. There’s a new kid on the block regarding federal reporting, which most LLCs and Corporations need to pay attention to. It’s called the Beneficial Ownership Information (BOI) report, and it’s something the Financial Crimes Enforcement Network (FinCEN) – part of the Treasury Department – is rolling out. In September 2022, they dropped the news about this rule that’s all about shining a light on who owns and benefits from businesses like ours.

Building on that, the whole idea behind this BOI report is pretty straightforward. FinCEN wants to peel back the layers and clearly understand who’s behind these LLCs and Corporations. It’s not just about having names on a sheet; it’s digging deeper for total transparency. The real goal here? They’re putting the brakes on any illegal use of business entities, targeting things like money laundering, fraud, and drug trafficking. This move is crucial for protecting our financial systems and bolstering national security. Plus, here’s some good news – there’s no fee for filing this report with FinCEN.

Now, who’s on the hook for filing this BOI report? 

It’s pretty specific. If your business falls under what FinCEN defines as a ‘reporting company,’ then you’ve got to file. Let’s break that down. You’re in if you’ve got a domestic company, like an LLC or a Corporation, set up through state registration. This also includes any business entity formed under tribal law. And it’s not just about businesses in the U.S. If you’re running a company formed under foreign laws but registered to do business in any U.S. state or tribal jurisdiction, you must also file. Here’s more detail: it’s not just LLCs and Corporations. You’re included if your business structure is a Limited Partnership, Limited Liability Partnership, or any similar setup that requires state registration. FinCEN has a chart in their Small Entity Compliance Guide on their website to make it easier. It’s a super helpful tool to help you figure out if your business needs to report beneficial ownership information.

Who Gets a Pass on Filing the BOI Report?

Kicking off the list of exemptions are Sole Proprietorships and General Partnerships. The good news for those running these types of businesses: you’re not on the hook for filing the BOI report. The reason? These aren’t considered registered legal entities, so they’re exempt from this requirement. 

Additionally, FinCEN has outlined 23 specific categories of companies that might be exempt from filing a BOI report. If your LLC or Corporation fits into these categories and meets the exemption criteria, you’re off the hook for this reporting. Any entity that aligns with one of these 23 exemption types doesn’t have to worry about the beneficial ownership reporting rule.

1. For the Securities Reporting Issuers, there’s an exemption. If your entity is categorized as an issuer of securities registered under section 12 of the Securities Exchange Act of 1934, or if it needs to file supplementary and periodic information under section 15(d), you’re not required to file the BOI report.
2. Next on the exemption list are entities with governmental authority. If your entity is established under U.S. laws, state laws, tribal laws, or even as part of an interstate compact, and it exercises governmental authority on behalf of any of these jurisdictions, then you’re exempt. This covers many government-affiliated entities, ensuring they’re not required to file the BOI report.
3. Then we have the banks. Suppose your entity is classified as a ‘bank’ according to section 3 of the Federal Deposit Insurance Act or sections 2(a) or 202(a) of the Investment Company Act of 1940. In that case, you can skip the BOI report filing. Banks are already covered under other regulatory requirements by these definitions, so they’re exempt from this.
4. Credit unions are also on the exemption list. Suppose your entity is a ‘Federal credit union’ as outlined in section 101 of the Federal Credit Union Act or a ‘State credit union’ per the same section. In that case, you’re exempt from filing the BOI report. Being a credit union under these specific definitions means they’re already regulated in a way that exempts them from this additional reporting requirement.
5. For the depository institution holding companies, there’s a clear pass. If your entity is a ‘bank holding company’ as defined in section 2 of the Bank Holding Company Act of 1956 or a ‘savings and loan holding company’ as per section 10(a) of the Home Owners’ Loan Act, then you’re not required to file the BOI report. These types of companies are exempt from this requirement because of their specific financial structures and regulations.
6. Moving on to money services businesses, there’s an exemption here, too. You’re exempt from filing the BOI report if your entity is a money-transmitting or registered money services business with FinCEN. These types of businesses are already closely regulated by FinCEN, which means they fulfill their reporting obligations through existing channels.
7. For brokers and dealers in securities, there’s an exemption in place. If your entity is a ‘broker’ or ‘dealer’ per the definition in section 3 of the Securities Exchange Act of 1934, and you’re registered under section 15 of that same Act, you’re not required to file the BOI report. Being regulated under these securities laws means you already meet comprehensive reporting standards.
8. Entities that are securities exchanges or clearing agencies also have an exemption. If your entity qualifies as an ‘exchange’ or ‘clearing agency’ under section 3 of the Securities Exchange Act of 1934 and is registered accordingly under sections 6 or 17A, you don’t need to worry about the BOI report. These entities are exempt because their operations are subject to stringent regulatory oversight.
9. There’s an exemption for entities registered under the Securities Exchange Act of 1934 with the Securities and Exchange Commission but not fitting into the usual categories – like securities reporting issuers, brokers or dealers in securities, or securities exchanges or clearing agencies. These could be entities engaged in other regulated financial activities under the SEC but not specifically covered by exemptions 1, 7, or 8. As long as they’re registered under different provisions of the Securities Exchange Act and meet those specific criteria, they’re exempt from the BOI reporting.
10. There’s a clear path to exemption for investment companies and investment advisers. If your entity is an ‘investment company’ as detailed in section 3 of the Investment Company Act of 1940, or an ‘investment adviser’ as defined in section 202 of the Investment Advisers Act of 1940. You don’t need to file the BOI report if it’s registered with the Securities and Exchange Commission under either of these Acts. These entities are already subject to detailed regulations and reporting requirements under their specific acts.
11. Venture Capital Fund Adviser – If your entity is classified as a venture capital fund adviser, as specified in section 203(l) of the Investment Advisers Act of 1940, and has filed the required documents with the Securities and Exchange Commission, including Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, then you’re exempt from the BOI reporting requirement.
12. Insurance Company – Entities classified as ‘insurance companies’ under section 2 of the Investment Company Act of 1940 are exempt from filing the BOI report. This exemption is provided because these companies already fall under specific regulatory frameworks that address the transparency and reporting requirements that the BOI report seeks to fulfill.
13. State-Licensed Insurance Producer – Entities operating as state-licensed insurance producers are exempt from the BOI reporting. To qualify, these entities must be authorized and regulated by a state insurance commissioner or a similar state official or agency. Additionally, they must have a physical office in the United States where their regular business activities are conducted. This physical office requirement ensures that the entity is distinct and operates independently from other unaffiliated entities.
14. Commodity Exchange Act Registered Entity – Entities registered under the Commodity Exchange Act get an exemption. This includes those defined as ‘registered entities’ in section 1a of the Act and those registered with the Commodity Futures Trading Commission. The list encompasses futures commission merchants, introducing brokers, swap dealers, major swap participants, commodity pool operators, commodity trading advisors, and retail foreign exchange dealers. These entities are exempt because they are already under the regulatory purview of the Commodity Futures Trading Commission.
15. Accounting Firm – Public accounting firms registered under section 102 of the Sarbanes-Oxley Act of 2002 are exempt from the BOI report. This exemption applies because these firms already adhere to stringent regulations and transparency requirements under the Sarbanes-Oxley Act, fulfilling the objectives the BOI report aims to achieve.
16. Public Utility – Entities classified as public utilities are exempt from filing the BOI report. This includes those regulated and providing essential services such as telecommunications, electrical power, natural gas, or water and sewer services within the United States. Their exemption is due to the nature of their services and the regulatory oversight they already operate under.
17. Under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010, entities designated as financial market utilities by the Financial Stability Oversight Council are exempt from the BOI reporting. This exemption is granted because these entities play a critical role in the financial markets and are subject to rigorous oversight by the Council.
18. Pooled Investment Vehicle – Entities that are pooled investment vehicles also qualify for an exemption from the BOI report. This includes investment companies as defined in section 3(a) of the Investment Company Act of 1940 and companies that would normally be classified as investment companies but are excluded under paragraph (1) or (7) of section 3(c) of the same Act. Additionally, these entities must be operated or advised by other exempt entities such as banks, credit unions, securities brokers or dealers, investment companies or advisers, and venture capital fund advisers.
19. Tax-Exempt Entity – Entities with tax-exempt status are exempt from the BOI report, specifically:
    • Organizations falling under section 501(c) of the Internal Revenue Code of 1986 exempt from tax as per section 501(a).
    • Organizations previously tax-exempt under section 501(a) but lost their exemption less than 180 days ago.
    • Political organizations defined in section 527(e)(1) of the Internal Revenue Code exempt under section 527(a).
    • Trusts as outlined in paragraph 1 or 2 of section 4947 of the Internal Revenue Code.
20. Entity Assisting a Tax-Exempt Entity – Entities that specifically support tax-exempt entities (as described in Exemption #19) are exempt, but they must meet all these criteria:
    • Operate solely to provide financial assistance or manage governance rights over a tax-exempt entity.
    • Be a U.S. person, per section 7701(a)(30) of the Internal Revenue Code of 1986.
    • Be beneficially owned or controlled exclusively by U.S. citizens or individuals lawfully admitted for permanent residence (as defined in section 101(a) of the Immigration and Nationality Act).
    • Obtain the majority of their funding or revenue from U.S. persons who are citizens or legally permanent residents.
21. Large Operating Company – Larger companies have their criteria for exemption. To qualify, a company must:
    • Employ over 20 full-time employees.
    • More than 20 of these employees work in the United States.
    • Maintain an operational physical office within the United States.
    • Have filed a Federal income tax or information return in the U.S. for the previous year showing over $5,000,000 in gross receipts or revenues.
    • Have reported this amount exceeding $5,000,000 gross receipts or revenues on its IRS Form 1120, consolidated Form 1120, Form 1120-S, Form 1065, or a similar IRS form.
    • Ensure that this gross receipts or revenues figure stays above $5,000,000, even after excluding any income outside the U.S.
22. Subsidiary of Certain Exempt Entities – Subsidiaries wholly owned or controlled by any previously mentioned exempt entities also qualify for exemption. However, this doesn’t apply if the parent entity is a money services business, a pooled investment vehicle, or an entity that assists a tax-exempt entity. If your company is a subsidiary of an exempt entity (excluding those from Exemptions 6, 18, and 20), it doesn’t need to file the BOI report.
23. Inactive Entity – Lastly, there’s an exemption for essentially inactive entities. To be exempt, the entity must:
    • Have been established on or before January 1, 2020.
    • Not be engaged in any active business operations.
    • Not be owned, wholly or partially, directly or indirectly, by a foreign person.
    • Have had no changes in ownership in the past year.
    • Have not conducted transactions exceeding $1,000 in the previous 12 months.
    • Not hold any assets, whether in the U.S. or abroad, including interests in corporations, LLCs, or other entities.

Why Are Those Categories Exempt?

The reason these specific categories get a pass is straightforward. These companies are already under other reporting requirements. These requirements ensure that the government gets all the necessary information to identify the individuals who own or control these companies. So they don’t need to double-check with the BOI report.

When Will FinCEN Start Accepting BOI Reports?

Mark your calendars: FinCEN is set to start accepting these reports from January 1, 2024. But take your time; they will only accept submissions on that date.

BOI Reporting Due Dates:

• For existing companies, those established or registered before January 1, 2024, the deadline for the initial BOI report is January 1, 2025.
• New companies formed or registered on or after January 1, 2024, must file their initial BOI report within 90 days of formation. This 90-day period starts either when the state notifies the company that its formation or registration is effective or after the state’s secretary (or equivalent office) publicly announces its creation or registration, whichever comes first.

As for ongoing reporting, companies need to submit updated or corrected BOI reports whenever necessary. There isn’t an annual or recurring requirement for this. However, if there’s a change in the information about a reporting company or its beneficial owners, or if previously submitted information needs to be updated, an updated report is required within 90 days of the change or the discovery of the inaccuracy. Note that no update is needed if there’s only a change in the company’s applicant information.

BOI Reporting Requirements Explained

So, what exactly does the BOI report need from you? It’s all about getting the full picture of the reporting company and the people behind it. Here’s what you’ll need to provide:

For the Reporting Company:

• The full legal name of your business.
• Any DBAs (Doing Business As) or trade names you use.
• The main business address in the U.S.
• Where your business was formed (state, tribal, or foreign jurisdiction).
• The IRS taxpayer ID number could be a TIN, Social Security Number, or EIN.

For Beneficial Owners and Company Applicants:

• Their full legal name.
• Date of birth.
• Their complete residential address (though, in some cases, company applicants might use the business address).
• A valid personal identification number and the issuing jurisdiction, like a non-expired U.S. passport, state driver’s license, other state, local, or tribal ID, or a foreign passport for those without U.S. documentation.

And here’s a neat shortcut – if a beneficial owner or company applicant has a FinCEN identifier, just include that in your report. This unique ID number simplifies the process and can be requested through an electronic application.

Who Counts as a Beneficial Owner?

Anyone with substantial control over your company or who owns or controls at least 25% of it is considered a beneficial owner. Sometimes, a person might tick both boxes.
Remember, your company might have more than one beneficial owner, and you’ve got to list them all in your BOI report.

Special Cases in Reporting:

FinCEN has set some specific rules for certain types of beneficial owners. This includes minors, individuals whose stake in the company is through exempt entities, and those under the pooled investment vehicle exemption.

What Does Substantial Control Mean?

The following four criteria are key to determining if someone controls your company substantially. Meeting just one makes them a beneficial owner:

1. Holding a senior position like President, CFO, CEO, COO, General Counsel, etc.
2. Having the power to appoint or remove senior officers or most board members.
3. Influencing major business and financial decisions.
4. Any other significant control over the company, covering unique structural controls.

Substantial control can be direct, like being on the board or owning a majority of voting rights, or indirect, such as controlling entities that have significant influence over the company.

What Counts as Ownership Interest for BOI?

Anyone with at least 25% ownership in your company is a beneficial owner. This interest could be in equity, stock, voting rights, capital or profit interests, or convertible instruments.

Who’s Excluded from the Beneficial Ownership Rule?

There are five exceptions. You don’t include information about:

1. Minor children (use their parent or guardian’s details instead).
   
2. Nominees, intermediaries, custodians, or agents acting for a beneficial owner.
3. Employees without senior positions, whose control comes only from their employment.
4. Individuals whose interest is purely future-based, like inheritance (until they inherit).
5. Creditors of your company.

What About Company Applicants?

You’ll need to report up to two types of company applicants:

• Direct filers: The person who physically or electronically files the company’s formation documents.
• Controllers of the filing action: The individual is mainly responsible for directing the filing, even if they didn’t file themselves.

Reporting company applicants is mandatory for domestic companies created on or after January 1, 2024, and foreign companies registered in the U.S. on or after this date. It’s optional for companies formed or registered before this date.

How Does FinCEN Use BOI Report Data?

FinCEN stores all collected data in a secure database that is inaccessible to the public. However, government officials at various levels may access the data for national security, intelligence, and law enforcement activities. Financial institutions may also access this information with your consent in certain situations.

Penalties for Late or Inaccurate Reporting

Are you falling behind on your BOI report? It could cost up to $500 daily until you comply. And are you deliberately providing false information? That could mean up to two years in jail and/or a fine of up to $10,000.

How to File Your BOI Report

You’ll file these reports electronically through FinCEN’s secure system, available from January 1, 2024. Detailed instructions will be on FinCEN’s website.

If you need clarification on whether your company needs to file or who counts as a beneficial owner, it’s wise to consult with your attorney, accountant, or FinCEN. To ensure your BOI report is accurate and timely, consider contacting professionals like Zapit Solutions, who can help prepare and file these reports for LLCs, Corporations, and other entities.