Some Small Businesses Have Beneficial Ownership Information (BOI) Reporting Requirements Beginning in 2024

Update: A federal district court in Alabama ruled that the Corporate Transparency Act is unconstitutional and enjoined the government from enforcing the plaintiff to comply with BOI reporting. The ruling determined that small businesses are unfairly burdened by the reporting of highly personal information and the cost of such compliance. Until further court action, which could include an appeal by the U.S. Treasury, only the 65,000 members of the National Small Business Association that were part of the lawsuit are impacted and will not be subject to BOI reporting. 

Original article

Many businesses identified as reporting companies — primarily LLCs, S corporations, and C corporations — will have additional reporting requirements starting in 2024 under the Corporate Transparency Act (CTA). This mandate from the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) is intended to help prevent and combat money laundering activities by requiring some businesses to report their Beneficial Ownership Information (BOI).

Who Qualifies as a Beneficial Owner?

There are a few factors used in determining a beneficial owner, including an individual who, indirectly or directly:

• Exercises substantial control over a reporting company
• Owns or controls 25% or more of a reporting company’s ownership interests

There are two types of reporting companies; a Domestic reporting company (DRC) and a Foreign reporting company (FRC). Both involve corporations and limited liability companies. Both must file a document with a secretary of state or similar office. The difference is a DRC is created through the filing of its documents, while an FRC is formed under the law of a foreign company and has to file documents to register to conduct business in the U.S.

There are, however, exemptions for certain entities. For example, large operating companies, public utilities, certain financial institutions, and insurance companies might be exempt if all criteria are met. In all, there are 23 exemptions, so your business should seek legal counsel to understand if you qualify as exempt.

Note: Although not specified in FinCEN’s rule, sole proprietorships and general partnerships might also be exempt.

How Does My Business File a BOI Report?

As of Jan. 1, 2024, the electronic filing system is available and the form to report BOI can be accessed. Paychex client? Learn how we can help with your BOI reporting obligations. 

What Is the Deadline for BOI Reporting?

The rule took effect Jan. 1, 2024, and after changes announced by FinCEN, gives newly formed entities 90 days from the date of receiving notice that the company’s creation or registration has become effective to file their BOI report. As of Jan. 1, 2025, all businesses required to report will have 30 days from establishment or registration to file.

Businesses in existence prior to Jan. 1, 2024, that meet the criteria to report BOI must file by Jan. 1, 2025.

What Information Is Required on a BOI Report?

A reporting company must report:

• Legal name
• Any trade names, DBAs, or trading as names
• Current street address of its principal place of business
• Its jurisdiction of formation or registration
• Taxpayer ID#

Beneficial owners must report:

• Individual’s name
• Date of birth
• Residential address
• An ID# from an acceptable ID document (passport, U.S. driver’s license, and name of issuing state or jurisdiction of the ID document
• Must supply an image of the ID document and it cannot be expired

For additional information, check out the BOI webpage.

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What Are the Penalties for Non-Compliance?

The penalties are steep. Willful violations could result in civil penalties and/or criminal penalties. FinCEN published inflation adjustments in January 2024 for civil monetary penalties, increasing the potential fine to $591 per day (effective Jan. 25, 2024) from its original $500. The cap remains at $10,000. Criminal penalties could include imprisonment of up to two years.

Looking Ahead

This BOI reporting requirement is expected to impact tens of millions of businesses in America and certainly a portion of our Paychex clients. We recommend speaking with your legal counsel on whether you qualify for an exemption and, depending on the outcome, begin collecting your information to be prepared to file by your required deadline.