Comprehensive Guide to FinCEN and Filing BOI Reports

Introduction to FinCEN

The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Department of the Treasury tasked with safeguarding the financial system from illicit use and combating money laundering and terrorist financing. A key part of its role is the administration of regulations that promote transparency in financial activities, including the filing of Beneficial Ownership Information (BOI) reports.

The Corporate Transparency Act expanded anti-money laundering laws and created new reporting requirements for certain companies doing business in the US. Beginning in 2024, many small businesses are required to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) in an effort to create a national database for use by national security and law enforcement agencies to prevent the use of shell companies for criminal activity.

What is a BOI Report?

The BOI report is a requirement under the Corporate Transparency Act (CTA) designed to curb financial crimes by mandating businesses to disclose their beneficial owners. Beneficial owners are individuals who, directly or indirectly, own or control at least 25% of the entity or have substantial control over it.

Who Needs to File a BOI Report?

Entities required to file include most corporations, limited liability companies (LLCs), and similar entities registered or operating in the United States. Both domestic and foreign reporting companies are required to file reports. A company is considered a reporting company if a document was filed with the Secretary of State (SOS) to create or register the entity. Corporations (including S corporations), LLCs, and other entities formed through the SOS are subject to the reporting requirements. But, because sole proprietorships, trusts, and general partnerships do not require the filing of a formal document with the SOS, they generally are not considered a reporting company and will not have a filing requirement. Foreign companies are required to file reports if they are registered with the SOS or similar office under state law. Single-member LLCs need to file a BOI report.

What information must be provided?

Beneficial Ownership information (BOI) must be reported for the reporting company’s beneficial owners and (for entities formed or registered after 2023) company applicants. BOI includes an individual’s full legal name, date of birth, street address and a unique ID number such as a non-expired US passport, state driver’s license, or other government issued ID card.  An image of the document showing the unique ID number must also be included with the report.

Beneficial Owners

Two groups of individuals are considered beneficial owners of a reporting company: (1) any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company; or (2) any individual who exercises substantial control over the reporting company.

Company Applicants

The company applicant is the person who actually files the document that creates or registers the reporting company (e.g., an attorney).

FinCEN Identifiers

Individuals and reporting companies can request a FinCEN Identifier (FinCEN ID) to use in place of supplying detailed information on the report. A FinCEN ID is a unique number assigned by FinCEN which is obtained by submitting the same information as is required of a beneficial owner or reporting company. A FinCEN ID may be useful to individuals that prefer to send their personal information directly to FinCEN rather through a reporting company, or to individuals that may be required to supply information as a beneficial owner or company applicant of several reporting companies.

Exempt Entities

Understanding whether your entity is exempt or required to file ensures compliance with FinCEN regulations. If in doubt, consult a legal or financial professional. Under the Corporate Transparency Act (CTA), the following 23 categories of entities are exempt from filing Beneficial Ownership Information (BOI) reports:

1. Public Companies: Entities registered with the Securities and Exchange Commission (SEC) under Section 12 of the Securities Exchange Act of 1934.

2. Governmental Authorities: Federal, state, and tribal governmental bodies.

3. Banks: Banking entities regulated by federal or state banking laws.

4. Credit Unions: Federally or state-regulated credit unions.

5. Depository Institution Holding Companies: Entities defined under the Bank Holding Company Act of 1956.

6. Investment Companies: Registered investment companies under the Investment Company Act of 1940.

7. Investment Advisers: Registered investment advisers under the Investment Advisers Act of 1940.

8. Exchange Act Registered Entities: Entities registered under the Securities Exchange Act of 1934.

9. Insurance Companies: Entities regulated under state laws for providing insurance services.

10. Insurance Producers: Agents or brokers authorized by state law with at least $5 million in gross receipts annually.

11. Public Accounting Firms: Firms registered under the Sarbanes-Oxley Act of 2002.

12. Public Utilities: Entities regulated by a state or federal authority.

13. 501(c) Tax-Exempt Entities: Nonprofits, charities, and religious organizations exempt under Section 501(c).

14. Religious Organizations: Churches, synagogues, mosques, and similar entities.

15. Large Operating Companies: Entities with (a) over 20 full-time employees in the U.S., (b) $5 million in gross receipts or sales annually, and (c) an operational physical office in the U.S.

16. Subsidiaries of Exempt Entities: Entities wholly owned by exempt entities, except large operating companies.

17. Inactive Entities: Entities in existence for more than one year before January 1, 2020, with no active business, foreign ownership, or substantial assets.

18. Securities Issuers: Issuers regulated by the SEC.

19. Money Services Businesses: Entities registered with FinCEN under the Bank Secrecy Act.

20. Pooled Investment Vehicles: Funds operating under a bank, investment company, or adviser.

21. Insurance-Related Entities: Reinsurers and insurance trusts.

22. Tax-Exempt Housing Associations: Nonprofit housing and condominium associations.

23. Financial Market Utilities: Institutions regulated by federal financial agencies.

Non-Exempt Entities Required to File

Entities required to file BOI reports include most small and privately held businesses. These generally fall into the following categories:

1. Corporations: Includes domestic C-corporations and S-corporations not qualifying under exempt categories.

2. Limited Liability Companies (LLCs): State-registered LLCs conducting any form of business.

3. Limited Partnerships (LPs): Registered partnerships unless qualifying for an exemption.

4. Business Trusts or Statutory Trusts: Trusts organized by filing with a state or similar office.

5. Other Similar Entities: Any entity created by filing with a secretary of state or similar agency under U.S. laws.

6. Foreign Entities: Foreign entities registered to do business in any U.S. state or tribal jurisdiction.

Key Considerations

• Check Status Regularly: Businesses should confirm their exempt or non-exempt status since exemptions depend on meeting specific requirements.

• Large Operating Company Exception: Many businesses may qualify for this exemption if they meet employee, revenue, and physical presence thresholds.

• Trust Entities: Common-law trusts are not required to file unless explicitly registered.

Filing Requirements

The BOI report should include:

• Full legal name, date of birth, and address of beneficial owners.
• A unique identification number, such as a driver’s license or passport number.

Timeframes for Filing

For existing reporting companies created or registered before 2024, the initial report is due by January 1, 2025. For reporting companies created or registered in 2024, the initial report is due 90 days after the entity’s creation or registration. For reporting companies created or registered after 2024, the initial report is due 30 days after the entity’s creation or registration.

If there is a change to previously reported information about the reporting company or its beneficial owners, an updated report must be filed within 30 days of the change. So, it is imperative that your company implement a system to identify reportable changes and file an updated report with FinCEN in a timely manner.

1. Existing Entities: Have until January 1, 2025, to file their initial report.
2. New Entities: Must file within 30 days of formation or registration.
3. Changes to BOI: Updates must be filed within 30 days of any change in the reported information.

Special Cases

1. Closed or Dissolved Companies: Entities dissolved before January 1, 2024, are exempt. However, those dissolved after this date must file unless dissolution is reported.
2. Inactive Companies (Not Dissolved): If still legally active, these entities must file, regardless of operational status.
3. New Companies Without EIN: Filing is mandatory, even if the EIN has not yet been obtained.

A new company without an EIN can still be required to file a Beneficial Ownership Information (BOI) report, as long as they can provide another valid Taxpayer Identification Number (TIN) like a Social Security Number (SSN) or a foreign tax identification number, depending on the circumstances; they do not necessarily need an EIN to submit a BOI report. If the DRE does not have an EIN, it is not required to obtain one to meet its BOI reporting requirements as long as it can instead provide another type of TIN or, if a foreign reporting company not issued a TIN, a similar such number issued by a foreign jurisdiction and the name of that jurisdiction.

Penalties for Non-Compliance

The penalties for failing to file both initial and updated reports are steep.

1. Civil Penalties: Up to $591 per day for failure to file or correct inaccurate information.
2. Criminal Penalties: Intentional failure or false information can lead to fines of up to $10,000 and imprisonment for up to two years.

Delays and Mitigating Factors

Entities experiencing delays in filing due to unforeseen circumstances (e.g., natural disasters) may appeal for leniency. However, FinCEN expects reasonable effort and adherence to deadlines.

How to File

BOI reports must be filed electronically.

1. Create an Online Account: Register on the FinCEN website.
2. Fill the BOI Form: Provide all required information about beneficial owners.
3. Submit Electronically: Ensure timely submission to avoid penalties.

Key Challenges and Solutions

• For Inactive Companies: Clarify operational status to determine filing obligations.
• For New Companies Without EIN: Use available personal identification information for beneficial owners.
• For Entities with Complex Ownership: Seek professional legal or compliance assistance.

Importance of Compliance

Compliance with BOI filing requirements ensures transparency and helps FinCEN combat financial crimes. Entities should maintain accurate and up-to-date records to facilitate smooth reporting and avoid penalties.

For more information, check out the BOI Small Compliance Guide from FinCEN.

Conclusion

The BOI reporting mandate marks a significant step toward transparency in U.S. financial systems. Businesses should understand their obligations, act within required timeframes, and ensure accurate reporting to meet FinCEN’s requirements. Ignoring these obligations can result in severe penalties, but proactive compliance protects entities and strengthens the integrity of the financial system.

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