Editorial · February 24, 2024
Corporate Transparency Act: Who Must File a BOI Report
The Corporate Transparency Act is a federal law that makes many small companies tell the government who really owns them. Starting January 1, 2024, a company that must report files a Beneficial Ownership Information report, called a BOI report, with the Financial Crimes Enforcement Network, known as FinCEN. Most companies formed by a state filing, like an LLC or a corporation, are covered unless they fit one of 23 exemptions.
What the law is and why it exists
Congress passed the law as part of the National Defense Authorization Act for Fiscal Year 2021. It took effect on January 1, 2021, after Congress overrode a presidential veto. The aim is to stop criminals from hiding behind anonymous shell companies.
FinCEN is a bureau of the U.S. Treasury. It published the final rule that sets out how reporting works on September 30, 2022. The rule says who must file, what to report, and when. FinCEN says the reports are meant to help it and other agencies fight money laundering, fraud and tax evasion.
Which companies must file
The rule names two kinds of reporting companies. A domestic reporting company is a corporation, a limited liability company, or any other entity created by filing a document with a secretary of state or a similar office. A foreign reporting company is formed under foreign law and registered to do business in a U.S. state or tribal area by that kind of filing.
That means limited liability partnerships and most limited partnerships are usually covered too. Companies in U.S. territories count as well. A sole proprietorship is not a reporting company on its own, unless it files a formation document with a state office. Some trusts are in or out depending on whether the state requires a filing to create them.
Who is exempt
Twenty-three types of entities are exempt. The list includes banks, credit unions, insurance companies, public utilities, accounting firms, tax-exempt entities, and publicly traded companies that meet set rules. It also lists inactive entities and subsidiaries of certain exempt entities.
One exemption matters to many growing firms: the large operating company. To qualify, the company itself must have more than 20 full-time employees in the United States. FinCEN says you cannot add up employees across related companies to reach that number. If a company has always been exempt, it does not need to tell FinCEN. If it files a report and later becomes exempt, it files an updated report that marks it as newly exempt.
FinCEN advises owners to read the exact test for each exemption before deciding they are exempt. Its Small Entity Compliance Guide has a checklist for each one.
What you must report
A reporting company identifies itself. It then reports on each beneficial owner. A beneficial owner is any person who owns or controls at least 25 percent of the company, or who has substantial control over it. Substantial control covers people who make important decisions for the company.
For each beneficial owner, the company gives four things: a legal name, a date of birth, an address, and a unique ID number and issuing jurisdiction from an accepted ID document, along with an image of that document. Companies created on or after January 1, 2024 must give the same details for their company applicants. A company applicant is the person who files the formation document, or the person who directs that filing.
An owner can ask FinCEN for a FinCEN identifier. It is optional. The company can then list that number in place of the owner's personal details.
Filing deadlines
FinCEN opened its BOI E-Filing website on January 1, 2024. The deadline depends on when the company began.
- Created or registered before 2024: one year from January 1, 2024. The deadline is the first day of next year.
- Created or registered during 2024: 90 calendar days after the company gets notice that its creation or registration is effective. The original 2022 rule said 30 days, and FinCEN later gave 2024 companies 90.
- Created or registered later: 30 calendar days after that notice.
After the first report, a company has 30 calendar days to report a change, such as a new address or a new owner. It also has 30 days to fix a mistake once it knows about it.
Cost and penalties
FinCEN expected the cost to be about $85 per company for a simple first report. It said most companies would have simple ownership.
The penalties apply to willful violations. A person who willfully breaks the rules can face civil penalties of up to $500 for each day the violation continues. Criminal penalties can reach two years in prison and a fine of up to $10,000. FinCEN has also warned about scam emails and letters, some titled "Important Compliance Notice," that ask owners to click a link or scan a QR code. FinCEN says it does not send unsolicited requests, so use only fincen.gov/boi.
This article offers general information only, not legal advice. For how the Corporate Transparency Act applies to your own company, ask a licensed business attorney.