As the January 1, 2025, deadline for Beneficial Ownership Information (BOI) reporting approaches, businesses must ensure they are fully prepared to meet these new regulatory requirements. With just a few months left, it’s crucial to address some of the key questions and nuances that may impact your compliance strategy.
This follow-up article provides an overview of specific aspects of the BOI reporting requirements, and shares general tips to help your business prepare for the upcoming deadline.
Recap: What Is BOI Reporting?
Beneficial Ownership Information (BOI) reporting is a critical regulatory requirement introduced under the Corporate Transparency Act (CTA) to increase financial transparency and combat illicit activities like money laundering and tax evasion. All reporting companies, including LLCs and corporations, are required to disclose information about their beneficial owners—individuals who exercise significant control over the company or own at least 25% of its equity.
Key requirements include:
- Filing Deadlines: Companies formed before January 1, 2024, must submit their initial BOI reports by January 1, 2025. Entities formed in 2024 have 90 days to file, while those created in 2025 or later have 30 days.
- Required Information: The BOIR must include the full legal name, date of birth, residential address, and a unique identifying number from an acceptable identification document for each beneficial owner.
- Updates: Reporting is not annual, but companies must update their BOIR within 30 days of any changes in the company or beneficial owner information.
Understanding and meeting these requirements is essential to avoid significant penalties, including fines and potential imprisonment.
The Importance of Staying Informed
The regulatory landscape is continually evolving, and businesses must stay ahead of these changes to maintain compliance. The BOI reporting requirements, in particular, aim to increase transparency and prevent illicit activities. It’s crucial for companies to stay informed about their obligations, especially as deadlines loom and the complexity of requirements varies across different types of entities. Staying proactive and understanding your reporting obligations can help prevent costly penalties and ensure your business remains in good standing.
Frequently Asked Questions on BOI Reporting
Do dissolved entities need to file a BOIR?
One of the most common questions relates to the obligations of entities that have dissolved. According to FinCEN, entities that dissolved under state law before January 1, 2024, are not required to file a BOIR. However, if an entity was formed on or after January 1, 2024, and subsequently dissolved within the same year, it must file a BOIR, although no additional report is required to indicate the entity’s dissolution.
How are beneficial owners identified in complex ownership structures?
In cases where a corporate entity indirectly controls a reporting company, the individual beneficial owners behind that corporate entity must be reported. Exceptions exist, such as when ownership is entirely through exempt entities or when beneficial owners of both the reporting and intermediate companies are identical. These exceptions allow for streamlined reporting, but they must be carefully assessed to ensure compliance.
What are the specific reporting requirements for disregarded entities?
Disregarded entities, particularly single-member LLCs, have distinct reporting options. If the entity has an Employer Identification Number (EIN), it may report that EIN as its Tax Identification Number (TIN). If the entity does not have an EIN, it may use the owner’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN), depending on the ownership structure. It’s important to understand that disregarded entities are not required to obtain an EIN solely for BOIR purposes.
Reporting Requirements and Exemptions: A Closer Look
Understanding who needs to file a BOIR is critical for compliance. A reporting company is any domestic or foreign entity registered to do business in the United States, including LLCs, corporations, and other legal entities. However, certain exemptions apply:
- Entities dissolved under state law before January 1, 2024: These entities are exempt from filing a BOIR.
- Entities formed on or after January 1, 2024, and dissolved within the same year: These entities must file a BOIR, though no additional report is needed to indicate dissolution.
- Large Operating Companies: Companies that meet the criteria of having more than 20 full-time employees, over $5 million in gross receipts or sales, and a physical presence in the U.S. may be exempt, but must file an update if they later fall below these thresholds.
It’s crucial for companies to carefully assess whether they fall under these exemptions or if they are required to file. Failing to do so could lead to significant compliance issues down the line.
The Role of Tax Professionals in BOI Compliance
Tax professionals play a crucial role in helping their clients navigate BOI reporting requirements. There are several approaches that firms can take, ranging from providing education to full-service BOIR preparation. Every tax practice should consider its capacity and the needs of its clients when deciding on the level of support to offer.
Here are four paths to consider:
- Education: At a minimum, tax professionals should educate their clients about BOI reporting requirements.
- Track Client Compliance: Some firms may choose to track client self-compliance as an additional service.
- Outsource Preparation: Partnering with a third-party firm to handle BOIR preparation can be a practical solution for larger practices.
- Full-Service Preparation: Firms that choose to prepare BOIRs must ensure they have the processes in place to handle updates and corrections throughout the year.
Practical Tips for Ensuring Compliance
- Review and update internal processes: Ensure your company’s internal processes are aligned with the latest BOI reporting requirements. Regularly review and update the information on beneficial owners and reporting entities to avoid any compliance gaps.
- Leverage technology for accuracy: Consider using technology solutions to manage and monitor beneficial ownership data. Automated systems can help in maintaining up-to-date records and streamline the filing process, reducing the risk of human error.
- Consult with experts when in doubt: While many businesses may be able to manage BOIR on their own, it’s important to know when to seek advice from qualified professionals. Complex ownership structures or unique circumstances may require the expertise of legal or tax professionals to help ensure compliance.
Key Deadlines
As we approach the January 1, 2025, deadline, it’s essential to be aware of key deadlines and strategies to stay compliant:
- Initial BOIR Filing: Entities formed before January 1, 2024, must submit their BOIR by January 1, 2025.
- Entities Losing Exemption: If an entity loses its exemption during 2024, it must file its BOIR by January 1, 2025, or within 30 days of losing the exemption.
- Post-Exemption Filing: Companies that no longer meet the large operating company exemption threshold must update their BOIR within 30 days of filing their tax return that demonstrates a drop in income.
For example, an S corporation that filed its 2022 return in 2023 showing $5.2 million in gross receipts would be exempt from filing a BOIR in 2024. However, if its 2024 return filed in 2025 shows $4.8 million in receipts, it must file its initial BOIR by April 15, 2025, to maintain compliance.
Next Steps
Staying compliant with the FinCEN BOI 2024 Update is not a one-time task but an ongoing responsibility. Businesses must remain vigilant about changes in their structure, ownership, or reporting requirements and act swiftly to update their BOIR as needed.
At GreenGrowth CPAs, we are committed to helping our clients navigate these regulatory challenges with confidence. If you have any questions or need further information about BOI reporting, our team at GreenGrowth CPAs is here to help guide you. Contact us today to learn more about how we can assist your business.
For more detailed information, be sure to read our previous articles: FinCEN BOI 2024 Update: What Your Business Must Know and A Closer Look at BOI Reporting in 2024.
Please note, this article is for informational purposes only and does not constitute legal advice or services related to FinCEN BOI compliance or BOI reporting rules.
