Here in our South Loop Chicago Tax Preparation office, we assist new entrepreneurs with creating their business entity. Recently we have received questions regarding the new beneficial owner report that FINCEN will be requiring. This article will address the FINCEN business owner reports, the information required, and the businesses that must comply.
Effective January 1, 2024, the Corporate Transparency Act (CTA) will go into effect. If you already have an active small business or a rental property in an LLC that you started before 2024, you must comply with the new federal report filing requirements by December 31st, 2024.
If, in 2024, you start a new business or add a rental to a new LLC, you will have 90 days to comply with the new Federal reports filing requirement. Under this requirement, you have to file two reports simultaneously with the Federal Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN):
- A “beneficial owner” information report (BOI report).
- A company applicant information report.
Please note that this new federal filing is separate from state and local filings, such as your annual report. From now on, determining whether this filing is required, and completing it within the deadline must become a routine part of forming most new corporations and LLCs.
This brand-new federal beneficial owner information report (BOI report) will be filed with the Financial Crimes Enforcement Network (FinCEN)—the Treasury Department’s financial intelligence unit. The filing requirement applies to most corporations, limited liability companies, limited partnerships and certain other business entities.
These BOI reports must disclose the identities and provide contact information for all of the entity’s “beneficial owners”: the humans who either (1) control 25 percent of the ownership interests in the entity or (2) exercise substantial control over the entity.
Your BOI report must contain all the following information for each beneficial owner”:[1]
- Full legal name
- Date of birth
- Complete current residential street address
- A unique identifying number from either a current U.S. passport, state or local ID document, or driver’s license or, if the individual has none of those, a foreign passport
- An image of the document from which the unique identifying number was obtained
What happens if I don’t comply?
First, there are civil penalties of up to $500 for each day that a violation continues (capped at $10,000).
Second, there are also potential criminal penalties—imprisonment for up to two years for any person who willfully:
1.) provides, or attempts to provide, false or fraudulent beneficial ownership information and/or
2.) fails to report complete or updated beneficial ownership information to FinCEN.
The good news is that if make a mistake, you can avoid civil or criminal liability by submitting a corrected report within 90 days.
Who will have access to these reports?
FinCEN will create a new database called BOSS (Beneficial Ownership Secure System) for the BOI and will deploy the BOI to help law enforcement agencies prevent the use of anonymous shell companies for money laundering, tax evasion, terrorism, and other illegal purposes. It will not make the BOI reports publicly available.
Is my company a reporting company?
The CTA applies only to “reporting companies.” If the entity you’re forming is not a reporting company, you don’t have to worry about the CTA. Unfortunately, almost all small businesses are reporting companies.
Subject to some significant exemptions, the CTA applies to business entities formed by filing a document such as articles of incorporation or organization with a secretary of state office or similar official. This includes LLC’s corporations, limited partnerships in most states, and limited liability partnerships.
Breakdown of Business Entities & Their Reporting Requirements.
Sole proprietors. The CTA does not apply to sole proprietors because no document need be filed to legally establish a sole proprietorship (you simply start a business you own yourself).
Single-member LLCs. The CTA applies to individual business owners who form one-member LLCs to operate a business, even though that single-member LLC is taxed as a sole proprietorship (a “disregarded entity”). Reason: you must file a document (usually called articles of organization) with the secretary of state to form a one-member LLC, just as you must for multi-member LLCs.
Rental property. Many individuals form LLCs to own their rental properties. The newly formed 2024 LLCs trigger the CTA reporting requirements.
General partnerships. The CTA does not apply to general partnerships, except in a few states such as Delaware where general partnerships must make a state filing to come into existence. In states where the general partnership filing is optional and the partnership makes the filing, it must file the BOI.
Business trusts. Most business trusts are not reporting companies since no government filings are required to create them. But there are exceptions, such as Delaware statutory trusts.
Foreign corporations. The CTA also applies to foreign corporations, LLCs, and other entities that register to do business in the U.S. This is ordinarily done by filing a document with the state’s secretary of state.
Small businesses. Not all LLCs, corporations, or other business entities are subject to the CTA. Its focus is on smaller businesses not already heavily regulated by the federal government. FinCEN estimates that of the approximately 5,616,000 new companies formed each year, about 617,894 will be exempt. The broadest exemption is for “large operating companies.” These are businesses with:
- more than 20 full-time employees (those who work more than 30 hours per week),
- $5 million in domestic gross receipts or sales on their prior-year tax return, and a physical presence in the U.S
- tax-exempt non-profits, including Section 501(c)(3) corporations, and Section 527 political organizations.
What happens if I change my business address or personal address?
You will have to file an updated BOI Report. The BOI updated filing will need to be renewed if any of the information on the BOI report changes. If there is a change in the information on the BOI report, an updated report must be filed within 30 days of the change.
Although we’ve given you the basics, this is not an all-inclusive article. Should you have questions, or need business tax preparation, business entity creation, or business compliance assistance please contact us online, or call our office at 855-743-5765. Do you owe the IRS, or your state back taxes? Do you have unfiled tax returns? Is the IRS threatening to garnish your paycheck, or levy your bank account? Are you ready to get back on track with the IRS? Howard Tax Prep LLC will help you get back on track with the IRS, get into a settlement, or setup a payment with the IRS. Reach out to us now! Make sure tojoin our newsletter for more tips on reducing taxes, and increasing your wealth.
Author information: Trudy M. Howard is a managing member of Howard Tax Prep LLC, a south loop of Chicago tax preparation and accounting office.
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