Miller, Schenk: 32 million businesses subject to new beneficial ownership filing requirement

Thomas Miller, MBA, JD, LL.M.

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Jeanna Schenk, CPA, MST

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A new law will catch many business owners off guard if they’re not aware of their obligation to comply with the Corporate Transparency Act (CTA) by Dec. 31, 2024. The U.S. Treasury estimates that 32.5 million entities are required to file their initial Beneficial Ownership Information Report (BOIR) in 2024.

While many small businesses have heard about the CTA, its substantial fines and penalties begin in 2025. Here are the top five things that business leaders need to know.

Who is impacted by the BOI regulation?

Unless exempt, all entities that were created by the filing of a document with a Secretary of State or a similar office are required to file a BOIR. While there are 23 types of entities exempt from filing BOIRs, they are primarily businesses that already file identity documents with other regulatory agencies.

A pending lawsuit by the National Small Business Association currently exempts their 65,000 members from being required to file their beneficial ownership information with the federal government.

What is BOI reporting?

In 2021, Congress authorized the U.S. Treasury Department to collect data from U.S. registered businesses to help identify and reduce criminal activity. BOI reporting requires that companies file a report with the Financial Crimes Enforcement Network, and update it within 30 days of any corrections or changes. They must submit the physical residency address and identity documents for every beneficial owner.

Who are a company’s beneficial owners?

Any individual who directly or indirectly owns or controls a company is a beneficial owner. In addition to direct ownership — anyone with a 25% or more ownership share — beneficial owners are also those who exercise substantial control over the company.

Anyone unclear about who should be included within their filing should seek the guidance of a trusted professional tax adviser.

What penalties could be assessed for not complying?

Substantial civil and criminal penalties can be imposed for failure to file an initial or updated BOIR. Civil penalties can include a daily fine of $591 (adjusted for inflation) and criminal penalties allow for up to two years imprisonment and/or a fine of up to $10,000.

Individuals also can receive these penalties if they provide incomplete or false information.

Anyone who discloses or misuses beneficial ownership information could be subject to fines up to $250,000 and/or imprisonment for up to five years — or $500,000 and 10 years if it’s done while violating another U.S. law or as part of a pattern of illegal activity.

What should business do?

Learning the details and deadlines of beneficial ownership information reporting and how they may apply to your organization is essential. FinCEN’s BOI website is a good place to start.

From there, designate a point person —  and a backup —  to be responsible for BOIRs. This reduces ambiguity and formalizes accountability.

Be sure to communicate with all beneficial owners the importance of promptly providing their identity documents and physical addresses. Add BOIR filing and updating to all company calendars and checklists to ensure timely processing and updating.

And, of course, consult a trusted professional tax adviser to assist with part or all of the process.

Editor’s note: Thomas Miller and Jeanna Schenk are senior managers in the State and Local Tax practice group at Phoenix-based REDW Advisors & CPAs. To learn more about BOI reporting, visit www.redw.com or https://fincen.gov/boi.