As a small business owner or a tax professional tasked with their compliance process, you are likely used to dealing with a curveball or two thrown your way. For the 2024 calendar year, this curveball is Beneficial Ownership Information (BOI) reporting.

Starting January 1, 2024, the Corporate Transparency Act (CTA) requires many small businesses to submit Beneficial Ownership Information (BOI) reports to FinCEN. This helps law enforcement identify real owners of corporations to prevent financial crimes.

Businesses are required to submit a 2024 BOI Report to disclose certain information about their beneficial owners. These are individuals who have a substantial interest in and exert control over the business.

It is estimated that over 30 million businesses nationwide will be affected by this new reporting requirement. All businesses are tasked with determining whether or not they are required to file a BOI report or are eligible for an exemption.

Let's eliminate the uncertainty around BOI reporting for your business by exploring FinCEN BOI requirements, exemptions, and the associated costs and challenges. We'll also share strategies to help you navigate these requirements effectively.

BOI Reporting: Key Terms

Before we get into the information that is required on a BOI report, let’s review some key terms that will come up often when discussing the BOI process:

First is the reporting company, this is essentially just the business that is completing the BOI report as required by FinCEN. When it comes to reporting companies there are two categories:

• Domestic reporting companies are entities registered in the United States by filing with a secretary of state or any equivalent office. Some common examples of this would be a limited liability company (LLC), or a corporation.
• Foreign reporting companies are entities formed under the law of a foreign country that have registered to do business by filing with a secretary of state or any equivalent office. The key difference is that this business entity was not originally formed in the U.S.

Next is the beneficial owner. According to FinCEN, this is any individual who has substantial control over the decision-making process for the reporting company and/or has 25% ownership interest.

Another term that will come up in the report is the company applicant. This is the individual who directly files the document that registered the reporting company or the individual who was primarily responsible for the filing if there is more than one.

Last is the FinCEN identifier. This is a unique number that individuals or reporting companies can apply for through FinCEN. A FinCEN identifier can be used in place of some basic information (DOB, address, ID), so it is a time-saver.

Now that we’ve added these terms to our toolbox, we can discuss BOI reporting requirements.

What Information is Required on a BOI Report?

In simple terms, a BOI report provides the Financial Crimes Enforcement Network (FinCEN) with basic information about the reporting company, identifies the beneficial owners (those in control), and specifies the company applicant (the individual who filed the registration documents) for companies created before January 1, 2024.

The report requires specific  information about the reporting company:

• Name
• EIN
• Address
• Where it was registered (physical address)
• Whether the reporting company is foreign or domestic

The report requires specific  information about the beneficial owner:

• Name
• FinCEN identifier
• If there is no FinCEN identifier, provide the DOB, Address, and a form of ID

If the reporting company was created before 1/1/2024, the report also requires specific information about the company applicant:

• Name
• FinCEN identifier
• If there is no FinCEN identifier, provide the DOB, Address, and a form of ID

If the reporting company was created after 1/1/2024, the report also requires specific information about the company applicant:

• Name
• FinCEN identifier
• If there is no FinCEN identifier, provide the DOB, Address, and a form of ID

What About Exemptions from BOI Reporting?

In FinCEN’s Small Business Compliance Guide, they lay out 23 specific exemptions to BOI reporting. Some of these exemptions include tax-exempt entities, credit unions, banks, and government authorities.

However, one of the most common exemptions is #21, the exemption for Large Operating Companies. For many mid-size and large companies, this answers the question of whether or not they are required to file. Here is an overview: 

This exemption explains that an entity qualifies for this exemption if it meets these six requirements:

1. The entity employs more than 20 full-time employees
2. More than 20 full-time employees of the entity are employed in the United States
3. It has a physical office in the US that is in operation
4. It filed a US Federal income tax or information return for the previous year showing > $5,000,000 in gross receipts.
5. They reported that amount on their 1120, 1120-S, 1065, or an equivalent form.
6. And the gross receipt amount is still > $5,000,000 even after the amount received from sources outside the US  is subtracted.

When determining if your business is required to file a BOI report, the process of elimination is your friend. If your business doesn’t qualify for any of the exemptions, you are likely required to file. However, it is always best practice to consult a CPA or an attorney with any specific questions about BOI requirements.

Are there Consequences for Non-compliance?

Yes! Failure to comply with FinCEN requirements can result in costly penalties and even criminal fines. Including:

• Civil penalties can range up to $591/day
• Criminal penalties can include fines of up to $10,000 or imprisonment for up to 2 years.

How Long Does BOI Reporting Take?

There are so many factors that can affect how long the reporting process will take, and they may be specific to your business, however, there are reliable estimates. In our experience for the average small business it can take anywhere from 20 minutes to an hour or so. 

Keep in mind that this estimate can vary based on the complexity of the organizational structure and whether you choose to file yourself or hire a professional who charges by the hour or for specific services.

What are the Estimated Costs of BOI Reporting?

You can file for FREE directly on the FinCEN website! Here is a link to that. 

With that being said, if you are a business owner that has struggled with the free online version there are many options available out there. You can check with your current network to see if they do the filings for you or there is software out there that has a more user friendly interface.

Much like the time spent, these costs will vary depending on the complexity of the business’s structure. The numbers below are based on the average hourly rate of an administrative professional and the potential need to consult a professional (CPA, attorney, etc.).

For a reporting company with a simple structure, it is estimated that the responsible party will need around 90 minutes to review the reporting requirements, gather the necessary information, and file the report. Without professional consultation, this process will cost the company approximately $85.00.

For a reporting company with a moderately complex structure, the reporting process becomes more time-consuming as the complexity increases. FinCEN estimates that the initial process will take about 370 minutes or roughly 6 administrative hours. Consulting a professional may add an estimated cost of $1,000, bringing the total estimated cost to around $1,350.00. 

For a reporting company with a complex structure, FinCEN estimates that about 4.9% of reporting companies fall into this category. The estimated administrative time is 650 minutes or nearly 11 hours. Professional consultation may cost up to $2,000, making the total estimated cost approximately $2,614.87.

These estimates do not include the need for future corrected and updated reports.

What Happens After the Initial BOI Report is Filed?

After successfully filing the initial BOI report with FinCEN, you can breathe a sigh of relief, but continued compliance is required. This includes updates, corrections, and reports for newly exempt entities. 

If you find any incorrect information on your initial BOI report, you must file a correction. Additionally, if your business undergoes structural changes, you will be required to file an update. Examples include selling the business, appointing a new CEO, or a beneficial owner passing away. Even simpler changes, like a beneficial owner or the company moving to a new address, require updates.

If the business structure changes in a way that makes it exempt from BOI reporting, the reporting company must indicate this by filing a report.

The key takeaway is that FinCEN allows 30 days for the business to file its updated report after any of these changes take effect.

Overcoming Challenges of the BOI Reporting Process

While there is a free solution for filing the BOI report through FinCEN, several challenges may outweigh the benefits. Although the process can be completed online, there is no way to save reports for later updates or corrections. Instead, businesses must start from scratch each time, leading to more manual entry and no effective option for record-keeping.

Much like filing your business’s IRS information returns, there is an advantage to choosing an authorized provider. This allows businesses to better track the status of their reports, maintain easily accessible records, and complete reports with less manual data entry. For businesses that plan to complete this report themselves, this can be a worthwhile strategy for streamlining the process.

Key Takeaways for Your Business

Navigating the complexities of Beneficial Ownership Information (BOI) reporting is an essential task for many small businesses starting January 1, 2024. Understanding the requirements, key terms, and the potential costs involved is crucial for compliance. While the process may seem daunting, it is manageable with the right strategies and support.

Using an authorized provider can simplify the reporting process, ensure accurate recordkeeping, and reduce the manual effort required for updates and corrections. For businesses handling the process internally, being well-informed about the requirements and planning ahead will streamline the effort and mitigate potential challenges. 

Staying compliant with FinCEN's BOI reporting not only helps avoid penalties but also contributes to a transparent and lawful business environment. By taking proactive steps now, you can ensure your business meets these new regulations smoothly and efficiently.

Check out how Tax Bandits can help you with this filing!