Navigating FinCEN BOI Reporting: A Comprehensive Compliance Guide
The Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information (BOI) reporting is a new federal requirement that has significant implications for many businesses in the United States. This blog post will guide you through the essentials of BOI filings, including its purpose, deadlines, penalties, and how to comply.
What is FinCEN BOI Reporting?
FinCEN BOI reporting is a requirement under the Corporate Transparency Act (CTA), which aims to combat money laundering, tax evasion, and other financial crimes. The CTA mandates certain companies to disclose information about their beneficial owners to FinCEN.
Origin and Legal Context
The CTA was enacted as part of the National Defense Authorization Act for Fiscal Year 2021. Its implementation has faced some legal challenges, but as of now, the requirement stands, and businesses must comply to avoid penalties.
Understanding the Corporate Transparency Act and Its Legal Challenges
The Corporate Transparency Act (CTA) and its Beneficial Ownership Information (BOI) reporting requirements have been the subject of recent legal challenges in the U.S. Court of Appeals for the Fifth Circuit. Here's a summary of the key developments:
Recent Legal Findings
District Court Injunction
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al. This injunction:
- Blocked enforcement of the CTA and its BOI reporting requirements
- Prevented the U.S. Department of Treasury from enforcing the CTA
- Temporarily halted the January 1, 2025 reporting deadline
Fifth Circuit Appeal and Stay
In response to the district court's ruling:
- The U.S. Department of Justice (DOJ) filed an emergency motion on December 13, 2024, requesting a stay of the injunction.
- On December 23, 2024, a three-judge panel of the Fifth Circuit Court of Appeals:
- Granted the government's motion for a stay pending appeal
- Effectively reinstated the CTA and its reporting requirements
- Ordered an expedited hearing for oral arguments on the lawsuit
Rationale for the Stay
The Fifth Circuit panel provided the following reasons for granting the stay:
- The government demonstrated a strong likelihood of success in defending the CTA's constitutionality under the Commerce Clause
- Enforcing the injunction would cause irreparable harm to the government's efforts to combat financial crime
- The public interest in national security outweighed the potential burden on businesses
Update December 27th
As of December 26th, the filing requirement is once again suspended because the Federal 5th Circuit has nullified their previous decision to lift the stay. Consequently, there is currently no obligation to file the BOI.
Current Status and Next Steps
As a result of the Fifth Circuit's ruling:
- The CTA and BOI reporting requirements are once again enforceable
- FinCEN has extended the reporting deadline to January 13, 2025, for most reporting companies
- The plaintiffs filed an emergency petition for rehearing en banc on December 24, 2024, which reversed the original stay
Further developments are expected, including possible appeals to the U.S. Supreme Court. This legal battle highlights the ongoing controversy surrounding the CTA and its reporting requirements. Businesses should stay informed about these developments and prepare to comply with the extended reporting deadlines while the legal challenges continue.
Deadlines and Penalties
The deadlines for filing BOI reports vary depending on when your company was created or registered:
- Companies created or registered before January 1, 2024: Must file by January 13, 2025. Deadline has been suspended by the courts.
- Companies created or registered between January 1, 2024, and January 1, 2025: Have 90 calendar days after receiving notice of creation or registration.
- Companies created or registered on or after January 1, 2025: Must file within 30 calendar days of creation or registration.
Failing to meet these deadlines can result in severe penalties:
- Civil penalties: Up to $591 per day for each day the report is late.
- Criminal penalties: Up to two years of imprisonment and a fine of up to $10,000 for willful violations.
Who Must File?
The BOI reporting requirement applies to most LLCs, corporations, and other entities created by filing with a secretary of state or equivalent office. However, there are some exemptions:
- Required to File:
- Most small businesses
- Newly formed companies
- Foreign companies registered to do business in the U.S.
Exempt from Filing:
- Large operating companies (more than 20 full-time U.S. employees, over $5 million in gross receipts, and a physical U.S. office)
- Certain regulated entities (e.g., banks, credit unions, broker-dealers)
- Tax-exempt organizations
- Inactive entities
Beneficial Owner Information
A beneficial owner for BOI filings is defined as any individual who, directly or indirectly, meets at least one of two criteria:
- Exercises substantial control over a reporting company (does not necessarily have any ownership)
- Owns or controls at least 25 percent of the reporting company's ownership interests
Substantial Control
An individual is considered to exercise substantial control if they:
- Serve as a senior officer (e.g., President, CFO, CEO, COO)
- Have authority to appoint or remove certain officers or a majority of directors
- Are important decision-makers influencing business ventures, finances, or structure
- Exercise any other form of substantial control
Ownership Interests
Ownership interests are broadly defined and include:
- Equity, stock, or similar instruments
- Capital or profit interests
- Convertible instruments, futures, warrants, or rights to purchase, sell, or subscribe to shares
Exceptions
The following individuals are not considered beneficial owners:
- Minor children (parent or guardian information is reported instead)
- Nominees, intermediaries, custodians, or agents acting on behalf of another individual
- Employees acting solely as employees (excluding senior officers)
- Individuals with only a future interest through inheritance
- Creditors of the reporting company
It's important to note that beneficial owners must be individuals, not entities. When an entity owns 25% or more of a reporting company, the individual(s) who are the direct or indirect beneficial owners of that entity must be reported.
How to File Online: Step-by-Step Guide
Filing your BOI report online is a straightforward process. Here's a guide to help you through it:
Prepare Your Information
- Company details (name, EIN, address)
- Beneficial owner information (name, date of birth, address, identification document)
- Company applicant information (for entities formed after January 1, 2024)
Access the FinCEN BOI E-Filing System
- Go to https://boiefiling.fincen.gov/fileboir
- Click on "File Online BOIR"
Start Your Filing
- Review the warning language and click "I Agree"
- Select "Initial report" for your first filing
Enter Reporting Company Information
- Provide your company's legal name, EIN, and other required details
Add Beneficial Owner Information
- Best to utilize a FinCEN Identification, but may choose below
- Enter the required information for each beneficial owner
- Upload an image of their identification document
Add Company Applicant Information (if applicable)
- For companies formed after January 1, 2024, provide details about the company applicants
Review and Submit
- Double-check all entered information
- Provide your email address
- Agree to the certification statement
- Complete the CAPTCHA and click "Submit BOIR"
Remember, there is no fee for submitting your BOI report to FinCEN.
Conclusion
Complying with FinCEN BOI reporting requirements is crucial for maintaining your business's good standing and avoiding hefty penalties. By understanding who needs to file, when to file, and how to complete the process, you can ensure your company meets its obligations under the Corporate Transparency Act.
