What You Need to Know About Beneficial Ownership Reporting Requirements

Beneficial Ownership Reporting Requirements

In 2021, a new anti-money laundering law introduced the Beneficial Ownership Information (BOI) Requirement, mandating certain companies to disclose information about their ownership and control to the Financial Crimes Enforcement Network (FinCEN). 

John Milikowsky, Founder of Milikowsky Tax Law, weighs in on what businesses need to know to stay compliant and avoid hefty penalties:

The BOI requirement aims to combat money laundering and financial crimes by creating transparency about who owns and controls companies operating in the U.S. While the reporting obligation applies to most corporations and LLCs, there are exemptions and critical details businesses need to understand.

Who Needs to Report?

If your business is a corporation, LLC, or other entity that has filed with the Secretary of State to create the company, you are considered a “reporting company.” However, not all companies are required to file. The following entities are exempt:

  • Insurance companies
  • Public accounting firms
  • Banks and financial institutions
  • Tax-exempt organizations, including nonprofits and charities
  • Inactive companies that meet specific criteria

Inactive Company Exemption

The inactive company exemption can apply to businesses that meet all of the following conditions:

  • Formed before 2020
  • Not engaged in active business operations, such as selling products or services
  • Do not own any assets, including intellectual property like trademarks
  • Have not conducted financial transactions exceeding $1,000
  • Have not experienced a change in ownership within the last 12 months

This exemption is significant for many older businesses, but the rules can be nuanced. If you’re uncertain whether your company qualifies, it’s best to consult with a tax attorney or CPA to avoid missteps.

Why Compliance Matters

Failing to comply with the BOI reporting requirements can lead to significant penalties. The cost of noncompliance is $591 per day, up to a maximum of $10,000 per year. These penalties can quickly add up, especially for small businesses.

What Information Needs to Be Reported?

For companies required to file, the BOI reporting requirements are specific and thorough.

Company Information

Businesses must report:

  • Employer Identification Number (EIN)
  • Legal name and address of the company

Beneficial Owner Information

A “beneficial owner” is any individual who:

  • Owns 25% or more of the company, or
  • Exercises substantial control over the business

This definition of substantial control includes individuals such as:

  • CEOs, CFOs, and treasurers
  • Secretaries or general counsels
  • Board members with decision-making power
  • Anyone responsible for managing financial or legal affairs

There’s no limit to the number of beneficial owners a company must report—all qualifying individuals must be included.

Personal Information for Each Beneficial Owner

For each person identified as a beneficial owner, the following must be submitted:

  • Full legal name
  • Social Security Number (SSN) or equivalent
  • Date of birth
  • Current residential address
  • A state-issued ID or passport, including an uploaded photo of the document

This detailed level of reporting is designed to ensure transparency but can feel overwhelming for companies navigating the process for the first time.

How to Prepare

Compliance with the BOI requirements starts with understanding your company’s status. Here’s a step-by-step guide to ensure you’re ready:

  1. Determine if You’re a Reporting Company
    Review the criteria for reporting companies and exemptions to see where your business stands.
  2. Identify Beneficial Owners
    Make a list of all individuals who meet the ownership or substantial control thresholds.
  3. Collect Documentation
    Gather the necessary personal and company information for reporting, including identification documents for each beneficial owner.
  4. Consult a Tax Attorney or CPA
    If you’re unsure about your obligations or need assistance preparing your submission, seek professional guidance.
  5. File with FinCEN
    Ensure that your report is accurate, complete, and submitted on time to avoid penalties.

Final Thoughts

The BOI reporting requirements are an important step in enhancing financial transparency and reducing the risk of money laundering. However, navigating the exemptions, identifying beneficial owners, and preparing accurate reports can be complex.

At Milikowsky Tax Law, we specialize in helping businesses understand and comply with tax and regulatory obligations. If you have questions about the BOI requirements or need assistance filing, contact our team for expert advice and support.

For more information or to schedule a consultation, visit Milikowsky Tax Law’s website.