New Guidance on Beneficial Ownership Information Reporting Rule

On September 18, 2023, the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) published significant changes in financial reporting requirements for certain businesses operating in the United States, as mandated by the Corporate Transparency Act of 2021. These changes are slated to become effective January 1, 2024, and will require all covered businesses to provide certain “beneficial ownership information” (“BOI”) to FinCEN. This update will provide you with key information to ensure your compliance with these fast-approaching reporting obligations.

NOTE: the new reporting rules are aimed at preventing bad actors from using shell companies to facilitate illicit activities. Accordingly, the new BOI reporting rules generally do not apply to U.S.-based tax-exempt entities or large U.S.-based businesses with more than 20 employees and greater than $5m dollars in U.S. source gross annual receipts.

Who Must Report

Almost all domestic and foreign entities conducting business in the U.S., excluding tax-exempt entities, are subject to these new reporting requirements unless they meet certain exemptions. These exemptions primarily focus on the specific industry, business activity, and tax classification of an otherwise covered entity. This encompasses a wide range of businesses, including corporations, limited liability companies, and other entities formed under U.S. state laws, as well as foreign entities registered to conduct business in the U.S. that are not tax-exempt and which employ 20 or fewer employees while generating less than $5 million in gross annual receipts (as reflected in the company’s prior-year tax return). There are 23 exemptions to the new reporting requirements and determining the applicability of these exemptions to your business may be complex. In some instances, exemptions require a detailed review of prior year tax returns and financials. It is recommended that legal counsel determine whether an exemption will apply to you.

What Information Must be Reported

Each business must report detailed identifying information, such as legal names of officers, addresses, and taxpayer identification numbers / EINs. Businesses are also obligated to disclose comprehensive details about beneficial owners, including their names, birthdates, addresses, and unique identifying documents, such as passports or driver’s licenses. There may also be ongoing reporting obligations.

Reporting Due Dates

To comply with the BOI reporting requirements, generally:

• New companies formed after December 31, 2023, must file within 30 days of initial formation.
• Existing companies formed before January 1, 2024, have until January 1, 2025, to file reports.
• Companies with changes in beneficial ownership or changes to previously reported business information, such as ownership or address details, must file within 30 days of the filing of the change.

Penalties for Non-Compliance

Failure to file BOI reports can lead to severe consequences including civil penalties of up to $500 per day and criminal penalties of up to 2 years in prison and/or fines of up to $10,000. Moreover, if an entity fails to file a BOI report in a timely fashion, the key directors and officers of that entity may be subject to criminal and/or civil penalties, in addition to the foregoing.

Additional Key Information

• Policy Rationale.  As stated above, this new reporting rule aims to prevent bad actors from using shell or front companies to hide their identities, launder money, and participate in illicit activities.
• Additional Resources.  FinCEN has released a small business compliance guide that provides a more in-depth assessment of the new reporting rules, available here.  

Obermayer Can Help

Navigating these new requirements is a complex undertaking, and ensuring compliance is crucial to avoid potential penalties and liability. The Tax attorneys in our Business and Financial Practice Group are intimately familiar with these new reporting requirements and can determine whether you are exempt. If not, they can ensure that you are in compliance with all reporting obligations. We encourage you to review the foregoing and reach out to us directly with any questions or concerns you may have regarding the new reporting rules and the steps you will need to take to be prepared to file in the coming months. We are here to provide the support you need to navigate the reporting process effectively.

This alert is intended to notify its readers of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.