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Important Update - BOI Reports for US Companies
Background. The Corporate Transparency Act (signed into law on January 1, 2021) expanded anti-money laundering laws and created new a federal reporting requirement called a beneficial ownership information (BOI) report 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.
While we generally do not assist with these reports (they are not tax forms and they are not required annually), given the newness of this requirement and the steep potential penalties for non-compliance (up to $10,000 and potentially imprisonment), we have dedicated this newsletter to updating you on this topic.
BOI Reports. Beginning in 2024, US reporting companies (and certain foreign reporting companies) are required to file BOI reports. A company is considered a reporting company if a document was filed with the secretary of state (SOS) or similar office under US state law to create or register the entity. US corporations (including S corporations), US LLCs, US limited partnerships, 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 an SOS, they generally are not considered a reporting company and will not have a filing requirement. (While not common amongst our clients, we note that foreign companies are also required to file reports if they are registered with an SOS or similar office under US state law.)
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.
Important Update! A federal court in Texas on Dec. 3 temporarily blocked the Treasury Department from enforcing the BOI reporting rules, meaning the agency can’t impose penalties while the court conducts a more thorough review of the rule’s constitutionality.
In light of the court's decision, FinCEN added the following alert to their website (https://fincen.gov/boi):
In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
The website also states:
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.
Given the uncertainty of the situation, we will continue to monitor the news and provide updates on our website until a final decision on the reporting requirement has been made.
