Tax Facts

8978.1 / 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 Alabama.1 It seems almost certain that the government will appeal and the AICPA has advised small business to continue to comply.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 $591 a day (up to a maximum of $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.

1. National Small Business United v. Yellen, No. 22-cv-1448 (N.D. Ala. Mar. 1, 2024).


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