BOI Compliance Deadline: What Businesses Should Know

Gene Marks (0:00:00 to 0:00:04)

But what are the penalties for not doing this? Not complying?

Stephen Dombroski (0:00:04 to 0:00:26)

Yeah, sure. You know, so disregarding this requirement. If you do meet the definition of a, of a reporting company, it's a couple things. One, you could face civil penalties of $500 a day for the length of the violation, or even criminal penalties, which could be up to two years imprisonment and a maximum fine of $10,000.

Announcer (0:00:29 to 0:00:41)

Welcome to Paychex THRIVE, a Business Podcast where you'll hear timely insights to help you navigate marketplace dynamics and propel your business forward. Here's your host, Gene Marks.

Gene Marks (0:00:45 to 0:01:07)

Hey, everybody, and welcome back to another episode of the Paychex THRIVE podcast. Thank you so much for joining me. I'm here with Stephen Dombroski. Stephen is the senior compliance manager or a senior compliance manager here at Paychex, and today's conversation is about the Corporate Transparency Act.

So, first of all, Stephen, thank you so much for joining. It's great seeing you again.

Stephen Dombroski (0:01:07 to 0:01:09)

Yeah, good to see you, Gene. Glad to be here today.

Gene Marks (0:00:45 to 0:01:27)

Yep, glad to have you on. So, the Corporate Transparency Act, now, I've been talking about this to different industry associations on a very high level. So, let's start at a high level. Tell us about what this act is. What do we need to know about it?

Stephen Dombroski (0:01:27 to 0:02:47)

Yeah, so the Corporate Transparency Act, which many businesses are not familiar with yet, actually was enacted back in January of 2021, Gene. It was part of the National Defense Authorization Act, and really the whole purpose behind it is it's intended to help safeguard transactions here in the - financial transactions - here in the United States and to help prevent things like money laundering, terrorist financing, funneling drug trafficking funds into the financial network, all of that sort of stuff. So, it's really to help out with preventing that.

Now, the thing about the act is it specifically authorized a bureau of the U.S. Treasury Department that many business owners are not familiar with, called FinCEN - it's called Financial Crimes Enforcement Network. It authorized them to collect beneficial owner data, which certainly we'll get into – hat does all that mean in the context of this conversation – but to collect that and then also, in addition to collecting it, to providing some of that information to authorized government authorities and even in some cases to financial institutions to help prevent some of those things like money laundering or fraud, that sort of stuff.

Gene Marks (0:02:47 to 0:02:55)

So, let me get this right. So, this is reporting not just to the government, but we're going to also have to report to our banks, as well, some of this information?

Stephen Dombroski (0:02:56 to 0:03:08)

Well, no, it's not separate reporting. It'll be reporting directly to FinCEN, and then in certain cases, with authorization, a financial institution might be able to obtain some of that.

Gene Marks (0:03:10 to 0:03:27)

OK, and this act, this regulation that's coming up, this applies to all businesses of all sizes, correct? I mean, I think there's a limitation of the type of business, but let me just make sure. Regardless of the size of our company, though, everybody is going to have to be compliant. Is that wrong?

Stephen Dombroski (0:03:28 to 0:04:22)

You're essentially right, but there are certain categories of exemptions. In fact, through the rule, they've established 23 specific types of entities that will not need to report their beneficial owner information. And some examples of the companies that fall under the exemption, which is really well-detailed on the FinCEN website, are government authorities, a lot of financial institutions like banks, credit unions, money-service businesses. Even things like insurance companies, tax exempt entities, and certain large operating companies, they will be exempt from reporting, and that's largely because they've already done a lot of reporting of the information.

So, that being said, FinCEN has estimated, I think the number is about 32 million businesses across America they think are going to have to report. So, pretty big deal.

Gene Marks (0:04:22 to 0:04:31)

Yeah, that is a big file cabinet. So, we're going to be getting these forms, I guess these are manual reporting, or will this be done online?

Stephen Dombroski (0:04:32 to 0:04:40)

No, it's going to be 100% online, electronically filed information. They won't even allow any paper filing.

Gene Marks (0:04:40 to 0:04:48)

Okay. And are we getting notified of this anytime soon or is this something we should be doing, like now on our own?

Stephen Dombroski (0:04:48 to 0:05:37)

Well, notification is a big question that FinCEN has certainly been criticized of notifying businesses well enough about this requirement. So, at the highest level, you can't report today because the website is not even open for reporting. The requirement to report begins Jan. 1, this upcoming Jan. 1, 2024, to begin reporting.

But reporting really falls into a couple of categories of whether you're an existing business or if you are a newly formed business on or after Jan. 1, 2024, and there's some guidelines with the timelines involved with that reporting. And again, it'll be 100% electronic on their website.

Gene Marks (0:05:38 to 0:06:02)

Now, we'll get into the details in just a minute, but just I had read that the Treasury Department was working on an instruction manual or guidelines for employers and I'm sure it won't be anything less than 2,500 pages long. But, I mean, obviously Paychex provides these kinds of services to help employers do it, but will there be any kind of guidance given from the Treasury? Have you heard any updates from them on this?

Stephen Dombroski (0:06:02 to 0:07:11)

So, in fact, FinCEN on their website, which is really, easily accessible – it's out there – they've developed what they call the Small Entity or Small Business Entity Compliance Guide. It's a little bit lengthy, it's about 50 pages, but it does a fairly good job at walking a business through whether or not they are even considered a reporting company. And then, when you get down to the level of, okay, well, who is a beneficial owner, what do I have to report? And also there's a category referred to as a company applicant that may have to be reported.

That guide does a pretty good job of walking individuals through, as well as providing some examples. They do have some frequently asked questions available on their website, as well. I think that the hard thing right now is nobody's seen this database yet. They haven't released any of the information, and we're less than a month away from when this is supposed to open up for reporting. So, while we know the data points that have to be reported, we don't know exactly how that's going to work yet.

Gene Marks (0:07:11 to 0:07:37)

Got it. So, I'm assuming that most – you said about 32 million-plus businesses will probably have to report – so, I'm going to make the assumption that those listening to this or watching this are going to wind up being one of those companies that have to report. These are C corporations, S corporations, partnerships, all of that. So, it seems fairly likely. So, okay, so first of all, what do we have to report and on who? So, give us some broad strokes.

Stephen Dombroski (0:07:37 to 0:10:05)

Yeah, yeah, absolutely. So, at the highest level, first, once a company determines that they are a reporting company, they're going to have to report some basic information about that company. Those are things like their full legal name, if they've got any trade names, DBA names, a current address, which is their principal place of business.

And one caveat here is if you are a foreign reporting company, maybe you were formed outside of the United States and you've registered to conduct business in the United States, you'll have to provide this information, as well. Along with that address, they're going to have to provide a tax ID issued by the IRS if they have that, like an ITIN or an employer identification number, or if they're a foreign reporting company and they don't have that, a tax ID associated with their company that they're registered in. That's at the highest level.

Then when we get down into the beneficial owners, we've got two categories here. We've got a beneficial owner that has to be reported, and we've got a company applicant that may have to be reported if you're a newly formed business after Jan. 1.

The reporting pieces of data are essentially the same; they're the full legal name, date of birth, current residential address, in most cases, and then here's one important thing, too, is they're going to have to provide a unique identifying number for that individual. That most commonly comes from a government issued ID, like a U.S. passport or a state or tribal driver's license, that sort of stuff. And they're also going to have to provide a copy of the image of that document where the ID number came from. So, that's the primary information that they're going to have to report.

I do want to mention there's a couple of special reporting rules we won't get into depth here. They are outlined in those guides I previously mentioned, where certain individuals may not have to report. I'll give you one quick example. Technically, a minor child could be a beneficial owner. Rare, but it's a possibility. In those cases, rather than report the personal information of someone, like a minor child, a parent or legal guardian's information could be reported until they reach the age of majority. That's just one example. There's a list of a few things that FinCEN has outlined. So, that kind of, in a nutshell, covers the pieces of data that will have to be reported.

Gene Marks (0:10:06 to 0:10:29)

Okay, so I own a few stocks myself individually, just to take an example. So, I own Amazon stock, which I'm really annoyed about because it's gone down in value, but that's a whole other conversation to have. So, I am theoretically an owner of Amazon in my own tiny, tiny example. Am I a beneficial owner? How is that defined?

Stephen Dombroski (0:10:30 to 0:10:34)

Well, if you're a beneficial owner, you're earning quite a bit of money, because …

Gene Marks (0:10:35 to 0:10:37)

I probably wouldn't be doing this, let's just say. Okay.

Stephen Dombroski (0:10:37 to 0:11:49)

In that case, that's a great example and great question. So, when we look at beneficial ownership, it's in two categories. You might not own any part of a company, but you may exercise substantial control over that reporting company. Generally, that's folks like senior officers, important decision makers. It's not based on job title; it's based on if they are an important decision maker. Maybe they have authority to appoint or remove senior officers.

But then the second category, and that's kind of, I think, your example where that would come in is your ownership interest in the company. And the requirement today is that if you own or control at least 25% of the ownership interest in the firm, then you would be a beneficial owner. And that ownership can look like many different things. You mentioned stock. It could be in equity in the company. It could be in voting rights, maybe capital or profit interest. Those are just a few. All of those specifics of what ownership looks like are outlined in their Small Entity Compliance Guide.

Gene Marks (0:11:50 to 0:12:10)

Got it. So wait, Stephen, let me do this really quick. So, this is my Amazon; I'm at 23.4%. So, I'm below the 25% level of ownership in Amazon. So, that's a relief. I wouldn't be a beneficial owner. Actually, Stephen, I don't own 23.5%.

Stephen Dombroski (0:12:10 to 0:12:11)

Nor do I?

Gene Marks (0:12:11 to 0:12:36)

It would be nice. You mentioned about exerting control over the company, so that is important. I mean, somebody could theoretically be a 10% owner of a company, so they're under that 25% number, but they might still be the CEO, right or the big decision maker? They would consider to be a beneficial owner of that company, and then therefore or they exert control, they would have to be reported on, as well. Correct?

Stephen Dombroski (0:12:36 to 0:12:54)

Yes, you're absolutely correct there, Gene. You might exercise substantial control and have that ownership interest of 25% or more, or you might not have any ownership but yet exercise substantial control. In all those cases, you'd be considered a beneficial owner and your information must be reported.

Gene Marks (0:12:55 to 0:13:16)

That seems like a bit of a gray area to determine what the control somebody might have, even if they're a CEO or they're a 10% owner. I mean, a CEO can be like, hey, I can make decisions, but the board's got to approve all the big ones, so I'm not in control. You know what I mean? Will there be any guidance to determine that sort of exerts control over a company?

Stephen Dombroski (0:13:16 to 0:13:54)

Yeah, they actually do really have some extensive information in their guide because, to your point, this is complex stuff, right? It gets involved in the math and how much control and what type of control do I exercise. So, what they've done in their guide that I do think is particularly helpful is they walk through a number of different examples. Now, hey, let's face it, that's not going to answer every question for every situation, but I think that's going to catch the vast majority of those situations to help understand what is control and what is ownership.

Gene Marks (0:13:55 to 0:14:15)

Okay, I know this has to be asked, and of course, the question is obvious, I mean, we're going to submit this highly confidential information to the U.S. government. So, I'm sure, Stephen, you will confirm and guarantee that our information is completely and 100% safe and secure with the U.S. government. Correct. Could we have that, please, while I witness it?

Stephen Dombroski (0:14:16 to 0:15:38)

Only I had that type of control. That's a really great point. All kidding aside, one of the things that FinCEN has indicated, that since it is going to be 100% electronic filing, they've essentially given the indication that it will be a secure filing. They're going to be utilizing information security methods and controls that are typically used in the federal government to protect sensitive information. They're going to store all that information in a centralized database.

And again, when we talk about sharing any of that information, they'll only be allowed to share that information with authorized users as prescribed and set forth in the CTA. And again, that typically involves things like government agencies. Most frequently, we'll probably see it be for law enforcement purposes. I mean, that's the whole point, is to stop money laundering and illicit use of funds and things.

And then when we talked about early on, the financial institutions. In certain cases, a financial institution may be able to receive some of that information, but only if they're provided authorization from the reporting company. So, yes, they've indicated it will be secure. Can I give you my 100% guarantee? We know how that goes.

Gene Marks (0:15:39 to 0:15:55)

Stephen, if I start getting emails from Vladimir Putin after I submit this information, I'm coming after you, okay?

I want you to know that. Okay, so two more questions and I'll let you go. This starts Jan. 1. What's our due date? When's our deadline? When do we have to supply this information?

Stephen Dombroski (0:15:56 to 0:17:06)

Yeah, so there's actually two scenarios that we've got to look at here, Gene. So, the first is, if you are a company that's been in existence prior to Jan. 1, 2024, you can't begin reporting until Jan. 1, 2024, but you do have, essentially, a full year grace period. You will have to complete your initial filing by Jan. 1 of 2025.

If you're a newly formed business owner after Jan. 1, 2024, as written, the law would require that you must report your beneficial owner information within 30 days. Just recently, about a little over a week ago, FinCEN released some guidance. They've extended that deadline for the first year. So, those newly formed businesses, they will have to report within 90 calendar days of being notified that their business has officially been formed.

That grandfather in for the first year will go away come Jan. 1, 2025, and then any newly formed business must report within 30 calendar days.

Gene Marks (0:17:07 to 0:17:11)

And what about what's the requirements if we have change in ownership?

Stephen Dombroski (0:17:12 to 0:18:09)

Yeah, if you have change, that has to be reported, and I think that's something that could potentially be overlooked. When you think about it, they think, hey, I've done my initial filing. I did what I have to do. There is the requirement that if you have change in any information, whether at the company level or the beneficial owner level, you're going to have to report that. Somebody moves, you report it. Your license expired, and you got a new license ID number. You'll have to report it.

The one caveat there is the company applicants, who we didn't spend too much time talking about today, again, detailed in the guide, you will not have to report new information for them.

And then the final category really, there is it is possible that you filed incorrect information without realizing it with your initial filing. If you become aware of that, you will also have to update that information, and all that will have to be done within 30 calendar days.

Gene Marks (0:18:10 to 0:18:21)

Okay, boy, where's AI when you need it? You mentioned company applicants. I can't let you go without asking a little bit about that, because I forgot to ask you. What is a company applicant?

Stephen Dombroski (0:18:22 to 0:19:17)

Yeah, sure. So, a company applicant can fall into two categories. All these categories we have here. First, you might be what's considered a direct filer. So, let's say you're a business owner, and you have one of your employees actually register your business when you first started doing business, maybe with a Secretary of State or other similar government entity. You gave someone those directions, hey, go on this website, do this filing. They would be what's considered a direct filer as a company applicant. Or you yourself, if you gave that direction, you are also considered a company applicant, and no firm will report more than a maximum of two company applicants. And again, you will only report that if you are a newly formed business on or after Jan. 1, 2024.

Gene Marks (0:19:18 to 0:19:40)

Got it? Okay, one more question, and I'll let you go. What if we don't do this, we blow it off, we ignore it. I have clients that get, like, Census forms all the time, and I'm not saying this is right or wrong. Sometimes they don't fill them out and under penalty of death from the federal government. But what are the penalties for not doing this? Not complying.

Stephen Dombroski (0:19:41 to 0:20:49)

Yeah, sure. So, disregarding this requirement if you do meet the definition of a reporting company, it's a couple of things. One, you could face civil penalties of $500 a day for the length of the violation, or even criminal penalties, which could be up to two years imprisonment and a maximum fine of $10,000. That's kind of at that reporting level, and the important thing there to remember is even some of those senior officers, those exerting substantial control, those individuals, they could also be subject to civil or criminal penalties if they were aware that the company should have reported and they didn't.

And then it goes one step deeper. Hey, you might be an individual that the company is reporting as a beneficial owner, and you may have provided false information or fraudulent information. If that's discovered, you as an individual could also be subject to civil and criminal penalties. So, it's pretty important that businesses understand the requirement and meet the mandate if they're considered a reporting company.

Gene Marks (0:20:50 to 0:21:02)

And just to be sure, because we have people listening to this or watching this, they might own half a dozen companies. You've got to be filing this for every single entity that you own. Correct?

Stephen Dombroski (0:21:02 to 0:21:32)

Yeah. You do have to file for all those individual entities. Now, if some of those are related within the corporate structure, there are guidelines that FinCEN has established, kind of like a hierarchy in a chart that helps you understand better. Do I have to report all of these? Do I only report some of them, even when we get into tax exempt entities, how that works, as well. But sure, yeah, you're absolutely right. With that thought process, they may have to do multiple filings.

Gene Marks (0:21:32 to 0:21:37)

Okay. Little commercial here. So, what does a firm like Paychex do to help their clients do this?

Stephen Dombroski (0:21:37 to 0:22:15)

Yes, so obviously it's a brand-new requirement, and that's something that currently for Paychex we are in the process of developing an offering where we'll certainly be assisting those clients who would like assistance with completing this, to be able to help support them through these filing requirements, as well as the ongoing maintenance for all of those changes; a beneficial owner moves or the business changes addresses, or registers a new DBA name. We'll have an ability to assist employers with all of those requirements.

Gene Marks (0:22:15 to 0:22:57)

I know a few more of these and I'm selling my shares in Amazon and buying some Paychex shares, Stephen, because I'm a Paychex customer, I'm going to have you guys do it because I don't have the time to monkey with this stuff. Stephen, it's great information and we appreciate it.  

All of you guys who are watching or listening, just remember, this Corporate Transparency Act takes effect for most people on Jan. 1 of 2024, so you really need to make sure you're on top of it. Talk to your payroll service provider or HR expert or labor attorney so you'll make sure that you are in compliance with these requirements because it's something that you are required to do.

Stephen Dombroski is a senior compliance manager at Paychex. Stephen, always great to speak with you. Thank you very much.

Stephen Dombroski (0:22:57 to 0:22:59)

Thanks, Gene.

Happy to share the information.

Gene Marks (0:23:00 to 0:23:22)

Everybody, you have been watching or listening to the Paychecks Thrive podcast. My name is Gene Marks. Hope you enjoyed this. Well, you didn't enjoy that information, I know, but hopefully you got value out of this information.

Please, if you have any advice or tips or would like to suggest a guest for one of our episodes, visit us at payx.me/thrivetopics. Again, my name is Gene Marks. We'll see you again next week. Take care.

Gene Marks (23:22 to 23:58)

Do you have a topic or a guest that you would like to hear on THRIVE? Please let us know. Visit payx.me/thrivetopics and send us your ideas or matters of interest. Also, if your business is looking to simplify your HR payroll benefits or insurance services, see how Paychex can help.

Visit the resource hub at paychex.com/worx. That's WORX. Paychex can help manage those complexities while you focus on all the ways you want your business to thrive.

I'm your host, Gene Marks, and thanks for joining us. Till next time, take care.

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