8978.01 / What FinCEN reporting requirements apply to LLCs and other small business entities starting in 2024?

Editor’s Note: On March 1, 2024, the federal district court for the Northern District of Alabama ruled that the Corporate Transparency Act (CTA) that created the new FinCEN BOI reporting requirements was unconstitutional.  The court granted an injunction on enforcement, but that injunction only applies to the plaintiffs (including members of the National Small Business Association (NSBA) and, presumably, reporting companies in the Northern District of Alabama¹.  Two federal courts in Texas² granted injunctions to prevent FinCEN from enforcing the BOI reporting requirements on a nationwide basis.  As of February 10, 2025, one of those injunctions remains in place (the case is Samantha Smith and Robert Means v. U.S. Department of the Treasury, No. 6:24-CV-336 (E.D. Texas 1/7/2025). The Department of Justice has filed an appeal and FinCEN is reviewing the order.  Best practices do dictate that clients should be prepared to comply with the BOI reporting obligations if the injunction is lifted.

FinCEN has recently created new beneficial ownership reporting obligations that apply to all domestic reporting companies (including corporations, LLCs, limited partnerships and any entity formed by filing a document with a secretary of state in the U.S).  The company's beneficial owners must be identified and reported to FinCEN in an effort to control money laundering and other criminal activity committed through shell companies and other opaque business structures.  A "beneficial owner" is a natural person who either 1) exercises substantial control over the company or 2) owns or controls 25% or more of the ownership interests in the company (whether directly or indirectly).

When making the determination of 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.

The company must report the entity's (1) legal name, (2) any trade names or dba names, (3) principal place of business, (4) state of formation and (5) unique taxpayer ID number.

For each beneficial owner, the company must disclose (1) full legal name, (2) date of birth, (3) address, (4) identifying number from the individual's ID (driver's license or passport) and (5) a copy of the ID used.

Reporting companies created or registered on or after January 1, 2024, will need to report their company applicants.  A company that must report its company applicants will have two individuals who could qualify as company applicants (1) the individual who directly files the document that creates or registers the company and (2) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing.  “Company applicants” could include attorneys, accountants, individuals who work for a business formation service, etc.

Entities created before January 1, 2024 must file their report before January 1, 2025.  Entities registered after January 1, 2024 have 90 calendar days after receiving actual or public notice that its creation or registration is effective.  Entities formed after January 1, 2025 have 30 calendar days to file after receiving actual or public notice that its creation or registration is effective.  The registration portal opened on January 1, 2024 and is available at https://boiefiling.fincen.gov/

The penalties for willful violations of the BOI rules are $606 a day (up from $591 a day prior to January 17, 2025).  The maximum total penalty is $10,000.  Criminal penalties may include up to two years in prison.  FinCEN has been very clear, however, that it can only take enforcement action against business owners who willfully violate the law.  FinCEN has also noted that it is engaging in outreach programs designed to notify small business owners about the new BOI reporting requirements.

Exceptions to the reporting obligations are rare.  Most small business clients will not qualify under the exemptions that FinCEN has created.  The law does create exemptions for tax-exempt entities, certain political organizations and inactive organizations that are no longer conducting business.  Large organizations can be exempt if they have more than 20 employees in the U.S., have filed a tax return showing more than $5 million in gross receipts or sales during the prior year and have an operating presence at a physical site within the U.S.  If the entity fluctuates above and below the 20-employee limit, they must file.

FinCEN provided rolling guidance on the BOI reporting obligations throughout 2024.  When a company ceased to exist before the CTA became effective January 1, 2024, the company is not subject to the reporting requirements.  However, if the company continued to exist as a legal entity for any period of time after January 1, 2024, they are subject to the new reporting regime.  That’s true even if the company had technically ceased operations prior to January 1, 2024.

The new FinCEN guidance also addresses situations where a new entity was created in 2024 or later, yet was dissolved or ceased to exist before the entity’s initial reporting deadline.  These entities are still required to submit their initial BOI via the new procedures.  Entities created in 2024 have 90 days from the date they receive actual or public notice of their registration or creation.  Entitles created in 2025 or later have 30 days.  That’s true even if the entity legally ceased to exist before the reporting deadline.

FinCEN did not provide any guidance on how to identify the relevant individuals when an entity formally ceases to exist before their reporting deadline.  A different FinCEN FAQ indicates that the report should include information about the beneficial owners at the time of filing.

FinCEN guidance makes it clear that an individual can control an entity through a trust structure.  It's possible that a trustee may be a beneficial owner of a reporting company by (1) exercising substantial control over the reporting company, or (2) owning or controlling at least 25 percent of the ownership interests in that company via the trust or structure.  Beneficiaries, grantors and trust settlors can also be beneficial owners for CTA purposes.  The terms of the trust itself will dictate whether the individual is subject to BOI reporting requirements.

For example, the requisite ownership or control can be obtained if the trustee has the authority to sell dispose of trust assets or a beneficiary is the sole recipient of income and principal from the trust itself.