Starting January 1, 2024, many businesses in the U.S. will be required to submit ownership information to the Financial Crimes Enforcement Network (FinCEN). This requirement comes as part of the Corporate Transparency Act (CTA), designed to help combat money laundering, terrorist financing, and other illicit activities. The centerpiece of this effort is the Business Ownership Information Form, a new requirement that aims to increase transparency by revealing the true beneficial owners behind certain entities.
Failing to comply with this requirement, especially failing to file the form on time, can have serious consequences for businesses and individuals. In this blog post, we will break down the purpose of the form, who is required to file it, and what happens if you miss the deadline.
What is the Business Ownership Information Form?
The Business Ownership Information Form, officially known as the Beneficial Ownership Information (BOI) Report, requires specific businesses to disclose information about the individuals who own, control, or benefit from the business. This form must be submitted to FinCEN, a bureau of the U.S. Department of the Treasury that enforces laws aimed at preventing financial crimes.
Information Required on the Form:
1. Beneficial Owner Information:
- Full name
- Date of birth
- Current address
- Social Security number or other identification number
- A scanned copy of a government-issued ID (e.g., driver’s license or passport)
2. Company Information:
- Legal name of the entity
- Current address
- Tax Identification Number (TIN) or Employer Identification Number (EIN)
- The jurisdiction where the business was formed
Who Must File?
The form must be submitted by corporations, limited liability companies (LLCs), and other similar entities that are registered to do business in the U.S. However, not all businesses are subject to the filing requirement. Exemptions exist for publicly traded companies, large companies with more than 20 full-time employees and significant revenue, and certain regulated entities such as banks and insurance companies.
Purpose of the Business Ownership Information Form
This requirement is part of the broader Corporate Transparency Act (CTA)**, passed by Congress to prevent bad actors from exploiting U.S. businesses for illicit activities. Many shell companies and opaque business structures have been used for years to facilitate money laundering, tax evasion, and the financing of terrorism. By forcing businesses to report their beneficial owners, FinCEN aims to create a national database of ownership information that can be used by law enforcement agencies.
This transparency will make it harder for criminals to hide behind anonymous companies and will help ensure a level playing field for legitimate businesses.
What Happens If You Don’t File on Time?
Failing to file the Business Ownership Information Form on time can result in serious legal and financial penalties. Non-compliance can expose businesses and individuals to fines, criminal charges, and long-term reputational damage.
1. Civil Penalties:
Failing to file or providing false or incomplete information can result in civil penalties of up to $500 per day until the violation is corrected. These fines can accumulate quickly, especially if the business remains non-compliant for an extended period.
2. Criminal Penalties:
In more severe cases, criminal penalties can be imposed for willfully failing to file or submitting false information. These criminal penalties include:
- Fines of up to $10,000.
- Imprisonment for up to two years
3. Increased Scrutiny:
Non-compliant businesses may also face increased scrutiny from regulators and law enforcement agencies. They may be flagged as higher-risk entities, which could lead to additional audits, investigations, and legal actions. This increased attention can damage the reputation of the business and deter future partners, customers, or investors from engaging with it.
4. Loss of Business Opportunities:
Businesses that fail to comply may lose out on contracts or partnership opportunities, particularly with organizations that require transparency as a condition of doing business. A lack of compliance with FinCEN regulations could cause other companies to perceive your business as risky or untrustworthy.
How to Stay Compliant
To avoid penalties, it's critical that businesses understand whether they are required to file the Business Ownership Information Form and ensure that they do so promptly. Here are a few steps to stay compliant:
1. Determine Filing Requirement:
Assess whether your business falls under the scope of the FinCEN filing requirements. Small businesses, in particular, may need to verify if they qualify for any exemptions.
2. Collect Necessary Information:
Ensure that you have gathered the required information about all beneficial owners of your company. This includes verifying their identification documents and addresses.
3. Submit On Time:
The initial reporting requirement begins on January 1, 2024, for new businesses.
Existing businesses formed before January 1, 2024, will have until January 1, 2025, to submit their reports.
4. Stay Updated:
Compliance is an ongoing process. Businesses will need to update their filings if ownership or key control positions change. You should be prepared to file updated information within **30 days** of any changes.
In a Nutshell...
The Business Ownership Information Form is a critical part of the U.S. government’s efforts to increase corporate transparency and reduce financial crimes. Businesses that are required to file must take this obligation seriously, as failing to do so can result in significant fines, criminal penalties, and reputational harm.
Staying informed and organized is key to avoiding these issues. By understanding the filing requirements and deadlines, your business can ensure that it remains compliant, avoids penalties, and continues to operate smoothly in the marketplace.
If you need assistance or have any questions, feel free to book a free discovery call with one of our expert tax advisors here in Gainesville, Florida. We’re happy to help and offer personalized guidance. And remember, we work with clients virtually across all 50 states, so no matter where you’re located, we’re here for you!"
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