New Reporting Requirement for Small Businesses in 2024: Here’s what you need to know…

Lately, there’s been significant discussion about a new regulatory obligation affecting small businesses. Here’s the essential information:

Starting January 1, 2024, numerous businesses will need to submit beneficial ownership details to the Financial Crimes Enforcement Network (FinCEN). This mandate comes from the implementation of the Corporate Transparency Act (CTA), which was included in the National Defense Authorization Act for Fiscal Year 2021.

This new filing requirement targets primarily small corporations, limited liability companies (LLCs), and similar entities that:

• employ 20 or fewer full-time staff; and
• reported $5 million or less in gross receipts or sales on their last year’s federal income tax returns.

Image Credit: BOI Small Compliance Guide v1.1

Reporting Exemptions

Additionally, there are 23 specific types of entities that are not required to report their beneficial ownership information under this regulation.

1 Securities reporting issuer
2 Governmental authority
3 Bank
4 Credit union
5 Depository institution holding company
6 Money services business
7 Broker or dealer in securities
8 Securities exchange or clearing agency
9 Other Exchange Act registered entity
10 Investment company or investment adviser
11 Venture capital fund adviser
12 Insurance company
13 State-licensed insurance producer
14 Commodity Exchange Act registered entity
15 Accounting firm
16 Public utility
17 Financial market utility
18 Pooled investment vehicle
19 Tax-exempt entity
20 Entity assisting a tax-exempt entity
21 Large operating company
22 Subsidiary of certain exempt entities
23 Inactive entity

If you think you might qualify for one of these exemptions, go to page 11 in the FinCen Guide for a more detailed explanation of the categories.

Exemptions 12 & 13 for Insurance Companies and Producers

Since many of my readers are in the Title Insurance Industry, I’m going to call this one out specifically. Exemption #12 & #13:

Exemption #12: Insurance Company

• An entity is exempt if it qualifies as an “insurance company” as defined in Section 2 of the Investment Company Act of 1940.

Exemption #13: State-Licensed Insurance Producer

• An entity qualifies for this exemption if it meets both of the following conditions:

1. It is a state-authorized insurance producer, supervised by the state’s insurance commissioner or a similar official.
2. It maintains an operating presence at a physical office within the United States, where it regularly conducts business. This location must be owned or leased by the entity and distinct from any unaffiliated entity’s business location.

Image Credit: BOI Small Compliance Guide v1.1

Large Organization Exemption

Just in case you’re hoping your business is big enough to be exempt, an entity qualifies for the “Large Operating Company” exemption if it meets six specific criteria: employing over 20 full-time employees in the U.S., operating a distinct physical office within the U.S., filing a U.S. tax return showing more than $5 million in gross receipts, and maintaining that revenue threshold even after excluding income from foreign sources. The entity must consistently meet all these conditions to be eligible for this exemption.

What Small Businesses Need to Report to FinCEN

If you’re still with me, then you’re probably not exempt from this reporting requirement. The good news is that you only need to file this report once (and update the information is something changes). This is NOT an annual requirement.

When collecting and reporting information for your company, its beneficial owners, and company applicants, you should gather the following:

For the Reporting Company:

• Full legal name and any trade name or DBA (doing business as) name.
• Complete current U.S. address, specifically the principal place of business in the U.S., or if outside the U.S., the primary U.S. location where business is conducted.
• State, Tribal, or foreign jurisdiction of formation and, for foreign companies, the jurisdiction of first registration in the U.S.
• IRS Taxpayer Identification Number (TIN), including an Employer Identification Number (EIN). For foreign entities without a TIN, include a foreign tax identification number and the issuing jurisdiction.

For Each Beneficial Owner and Company Applicant:

• Full legal name and date of birth.
• Complete current address, using the residential address for beneficial owners and the business address for company applicants like paralegals.
• Unique identifying number and issuing jurisdiction from a valid document such as a U.S. passport, state driver’s license, local government or tribal ID, or a foreign passport.
• If available, a FinCEN identifier can be used in place of the above details for those who have one.

Refer to Chapter 3 of the FinCen BOI Small Compliance Guide for specifics on whether your company needs to report information about company applicants.

Filing Dates and Deadlines for the FinCen Beneficial Ownership Information Reporting

The Reporting Rule becomes effective on January 1, 2024, and from this date, FinCEN will start accepting Beneficial Ownership Information (BOI) reports electronically via its secure system. No BOI reports will be accepted before this date.

BOI Report Deadlines:

• Existing Companies as of January 1, 2024: Must file their initial BOI report by January 1, 2025.
• Companies Created or Registered between January 1, 2024, and December 31, 2024: Have 90 calendar days from the date they receive actual or public notice of their effective creation or registration to file their initial BOI report. The deadline is determined by the earlier of actual notice or public notice.
• Companies Created or Registered on or after January 1, 2025: Have 30 calendar days from the receipt of actual or public notice of their registration or creation to file their initial BOI report.

For Previously Exempt Companies: If a company was previously exempt but no longer qualifies for an exemption, it must file a BOI report within 30 calendar days of losing its exempt status.

How to File the FinCen Beneficial Ownership Information Report

To file a Beneficial Ownership Information (BOI) report, companies must use a secure electronic filing system provided by FinCEN. This system will be operational starting January 1, 2024, and no BOI reports will be accepted before this date. FinCEN will also provide detailed instructions and technical guidance on how to fill out the BOI report form, which will be available on their website at www.fincen.gov/boi. If a company encounters issues that prevent electronic filing, they should contact FinCEN directly at www.fincen.gov/contact for assistance.

File Your Report Here

FinCen BOI Court Challenge

The Corporate Transparency Act mandates that many new entities formed in 2024 and existing privately held entities by January 1, 2025, file a Beneficial Ownership Interest (BOI) report with FinCEN. However, on March 1, 2024, Judge Lyles C. Burke from the Northern District of Alabama deemed the BOI filing requirement unconstitutional, claiming it exceeds Congress’ constitutional powers. This ruling currently applies only to the plaintiff, National Small Business United v. Janet Yellen, and is expected to be appealed by the US Treasury Department to the 11th Circuit Court of Appeals.

Despite this legal challenge, the risk of both criminal and civil penalties for non-compliance remains, including a notable $591/day civil penalty after 90 days post-entity formation. In light of these developments, BMSS advises clients to continue consulting with legal counsel regarding BOI filing obligations.

Image Credit: FinCen BOI

Resources for More Detailed Information about the FinCen BOI Reporting

FinCen Beneficial Ownership Information site

FinCen BOI Small Compliance Guide

File Your Report Here

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Cheryl Evans is a RevOps Expert which is just a fancy way of saying that she’s been solving a wide range of problems for businesses of all sizes. With over 20 years of experience, working with everything from new start-ups and micro businesses to global corporations, she offers tailored RevOps business consulting and fractional executive services to fit your business’s unique needs, from one-off strategy sessions to ongoing support. With Cheryl’s help, you’ll save time, maximize revenue, and transform your business into a well-oiled, money making, machine.

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