Update on Beneficial Ownership Information Reporting

Beneficial ownership information (BOI) reporting began on January 1, 2024. We previously wrote about the essentials of BOI reporting, and this article provides an update on where it stands now and what affected individuals and businesses should do to ensure compliance.

There are many court cases winding through the Federal court system and one District Court in March 2024 declared the BOI reporting statute unconstitutional, but only as to the plaintiffs in that particular lawsuit. As of the date of this article, there is no nationwide injunction that applies to BOI reporting and businesses should plan on filing a report by year-end (or earlier if they were formed in 2024).

There are also various legislative proposals that would modify or delay BOI reporting, but they are just proposals at this point. The law remains intact and entities created before 2024 are required to file an initial report with FinCen by December 31, 2024. Entities created in 2024 have until 90 days after formation to file their initial report, and entities created in 2025 and beyond will have until 30 days after formation to file their initial report.

We advise individuals and businesses to gather all the information they will need to file their initial BOI report but to hold off on the actual filing of the report until November or December of 2024. This is because Congress may delay or eliminate the filing requirement, or a court may invalidate it. Also, changes in beneficial ownership are required to be reported within 30 days of the change and filing one report in 2024 is better than filing two reports in 2024 if there is a change.

Businesses should verify if they are eligible for one of the 23 reporting exemptions. The most common exemptions are the large operating company (LOC) exemption and the subsidiary exemption. The LOC exemption generally applies if a business (i) has a physical office in the United States, (ii) has more than 20 full-time employees (i.e., employees who work at least 30 hours/week or 130 hours/month) working in the United States, and (iii) has filed for the previous year a U.S. Federal income tax or information return reporting more than $5 million in U.S.-source gross receipts or sales (net of returns and allowances). The subsidiary exemption generally applies if a subsidiary is controlled or wholly owned, directly or indirectly, by certain exempt entities. A complete list of the exemptions and eligibility criteria can be found in FinCen’s Small Entity Compliance Guide.

If an individual is a beneficial owner of multiple entities and does not want to provide a copy of his/her passport or driver’s license to the various entities, then he/she should obtain a unique ID number directly from FinCen so that the ID number can be provided to the entities instead of the underlying owner information. Also, individuals should consider using a passport rather than a driver’s license to obtain the unique ID, or to provide to a reporting entity, because passports have a 10-year expiration period rather than 3-5 years for most state driver’s licenses.

The actual filing of the BOI report is fairly easy to do on FinCen’s website. There are also numerous third-party software providers that can assist with the filing for a fee. If you choose to file through FinCen’s website, take screenshots of the filing and the final receipt page because the site does not send an email receipt to confirm the date of the filing or that it was completed.

Remember that BOI reports are required whenever there is a change in beneficial ownership, e.g., the entity hires a new CEO or CFO. Establish an internal compliance system to keep track of BOI changes and reporting updates.

Our final advice is that when in doubt, err on the side of filing rather than not filing, and err on the side of including more beneficial owners rather than less. Filing a BOI report is not that onerous but the penalties for not filing can be severe.