Starting in 2025, nearly all business entities will be required to report certain information to FinCEN as part of the Corporate Transparency Act of 2021. Many business owners have significant questions about their beneficial ownership information reporting obligations, while other small-business clients may have no idea that the reporting obligations exist.
Penalties for willful violation are steep — $591 per day — and the government hasn’t been entirely clear as to when a violation will be considered “willful.” That makes it critical that small business clients understand their reporting obligations and the deadline that applies to their business.
While challenges to the BOI reporting obligations have been launched, they do remain in place. Companies that are formed next year will have only 30 days to comply, and advisors and clients should review existing FinCEN guidance to ensure that they don’t run afoul of the rules and incur penalties.
FinCEN BOI Reporting: Background
Although it was signed into law in 2021, the Corporate Transparency Act did not become effective until2024. The stated purpose of the law is to provide FinCEN with information needed to prevent and combat money laundering, tax fraud and financing for terrorist activities.
Businesses that are covered by the act must submit a beneficial ownership information report to FinCEN, which is a division of the U.S. Department of Treasury.
The reporting obligations apply to nearly all domestic “reporting companies,” which include corporations, LLCs, limited partnerships and any other entity formed by filing a document with a secretary of state in the United States. Reporting companies must identify and provide information about beneficial owners to FinCEN.
Beneficial owners for this purpose include natural people who either 1) exercise substantial control over the company or 2) own or control 25% or more of the ownership interests in the company, whether directly or indirectly. When determining whether an individual owns or controls 25% of the business, the individual's options, convertible instrument and other similar equity rights are treated as though they have been exercised.
