Due 12/31/24 - CLICK HERE TO FILE YOUR REPORT – Due 12/31/24

We discussed BOI reporting in several client newsletters sent earlier this year.  Since then, we’ve learned that, for many businesses, the rules are far more burdensome, complex, and consequential than they might appear.  A quick jog through FinCEN’s 57-page BOI Reporting Small Business Compliance Guide provides a quick tutorial on this complexity. 

The initial filing deadline is December 31, 2024, and most owners don’t even know the requirement exists.  This lackluster response has regulators in such a panic that FinCEN – an organization far removed from Generally Accepted Accounting Principles or the IRS - is directing filers to seek the assistance of CPAs and Enrolled Agents, not just attorneys. 

CPAs and Tax Pros, however, should be leery about providing such assistance.  Although there are several reasons for apprehension (read on – you’ll find them), the most dangerous is straying from Taxville into Legal Land and the Unauthorized Practice of Law, as discussed in the next paragraph.

Unauthorized Practice of Law: Tax Pros (CPAs & EAs) have limited (I use this phrase loosely) authority to “interpret” tax law under Title 26 of the U.S. Code, the Internal Revenue Code.  They have no express authority (limited or otherwise) to interpret other law areas, including Beneficial Ownership Interest Reporting statutes.  BOI statutes rest under Title 31 of the U.S. Code (Money and Finance), far from Title 26, our area of authority, practice, and expertise.  

A key component (some may even say the primary purpose) of Beneficial Ownership reporting is determining who is and is not a Beneficial Owner.  Doing so requires interpreting a legal term in the statute called “Substantial Control” (discussed below).  As a non-attorney, interpreting and applying this statute feels A LOT like practicing law.

Therefore, our office is NOT providing BOI reporting services until our limited authority gets extended to this code section and blanket civil and criminal immunity is provided (then, we might).  

Additionally, as discussed in my article, How Congress is Killing the Tax Profession, our plates have no room for another regulatory burden that has nothing to do with taxation.  Title 26, the Internal Revenue Code, is one of, if not the most fluid and complex U.S. legislation and more than enough to deal with.

Good News & Bad (Good) News

The Good News: If you’re a small business owner operating as an LLC, don’t worry.  BOI reporting is a relatively simple process you can complete on your own.   Click here to start.  

The Bad News (still good news for you): We’ve invested significant time and money to learn about BOI reporting, and we will share it with you today …for FREE!

And what have we learned?  Most significantly, we’ve learned that as one knows more about BOI reporting, they are more likely to shake their head and ask, “What? …Why? ...Wait, What!?”   

So, this is where we’ll start our discussion - with “What?”

What?

• Beneficial Ownership Interest Reporting (BOI) is a requirement of the Corporate Transparency Act, included in the Anti-Money Laundering Act of 2020, which passed as part of the National Defense Authorization Act for Fiscal Year 2021 (“NDAA”).
• The NDAA became law on January 1, 2021, after our elected representatives overrode President Trump’s veto.  The Senate Voted 81-13; the House 322-87.
  (Remember - we elect the representatives who create the rules we follow, including the taxes we pay.  Like the IRS, FinCEN is just following the rules we vote for!)
• Beneficial Ownership Reporting took effect on January 1, 2024, and requires all entities registered with (formed by) their respective Secretaries of State to report the personal information of each legal owner, board member, and all individuals having Substantial Control over the entity to FinCEN, the Financial Crimes Enforcement Network.  

Who Must File?

• Entities that must file BOI Reports include domestic & foreign Partnerships (limited and professional), corporations, business trusts, and Limited Liability Companies (LLCs) – INCLUDING EVERY LLC CREATED TO HOLD REAL ESTATE.
• A key determinant for BOI Reporting is the entity filing a formation document with the Secretary of State or similar state office. 
• Most Home Owner Associations must also file (consult with your attorney).  If the HOA is a legal entity and files an annual report with the Secretary of State, it likely needs to file.
• Exempt Entities: Twenty-three entities are exempt from reporting as listed in this helpful, 57-page Small Business Compliance Guide (starting on page 4).  Now, don’t get too excited.  Except for nonprofits (consult your attorney), exempt entities are large businesses that file similar information under different statutes.
• IMPORTANT: Sole proprietorships that are not LLCs do NOT need to file BOI reports.  Merely having an Employer Identification Number does not mean you need to file.  Additionally, general partnerships (non-LLC) not formed by registering with their Secretaries of State do not file.  

What is the Deadline?

• For new entities formed in 2024, the BOI report is due within 90 days of formation.
• For entities formed before 2024, the BOI report is due by December 31, 2024.
• For entities formed after 2024, the BOI report is due within 30 days of formation.
• Updated reports (discussed below) are due within 30 days of a material change.

How Do I File?

• There is only one way to complete and file your Beneficial Ownership Interest Report: Through https://boiefiling.fincen.gov/.  
• There are two filing methods: 1) Downloading a PDF file, completing it, then uploading the finished report back to FinCEN, or 2) Completing and filing the report online.  
  It is recommended (by sources) that the PDF method is preferable because it provides a hard copy of what you file.  The PDF method also avoids lockups and glitches that may happen when filing directly online.
• NOTE: The only way to file your BOI report is electronically.  Paper copies are not accepted, and there is no mailing address for physical delivery.  Do you lack reliable internet, browser skills, or saintly patience?  Contact FinCEN to share your concern by clicking here (yes - contact them electronically)
• IMPORTANT: Although the process has improved - entities should now receive an email confirmation and the ability to download their report - successful filing will provide a screen signifying acceptance.  PRINT AND SAVE THIS SCREEN.  If you do not receive an email, this may be your only proof of filing.  

Who & What Get Reported? 

• As the title suggests, beneficial owners are the focus of BOI reporting.  The name, date of birth, address, and identifying number from an acceptable ID for each beneficial owner get reported.  Acceptable IDs include current state-issued driver’s licenses, ID, or a U.S. Passport.  A copy of each ID must be loaded with the report.
• Beneficial Owner: A beneficial owner is any individual who directly or indirectly owns or controls at least 25% of the entity OR, and most importantly, directly or indirectly exercises substantial control over the entity.
• Substantial Control is a legal term one must interpret business-by-business.  Individuals with substantial control include officers and board members, but it does not stop there.  Anyone with enough behind-the-scenes influence to guide operations also has substantial control.  Below is a chart from the BOI website illustrating the complexity of determining substantial control.
• Given the purported intent of the legislation (discussed below under Why?), these unseen influencers appear to be the primary focus of BOI reporting.  Most worrisome are potential penalties for failure to report someone who, perhaps many years later, is alleged to be a beneficial owner. 
• Shaking your head yet?  No?  Check out the penalties for noncompliance and missing deadlines.

Noncompliance Penalties: 

• The Corporate Transparency Act provides stiff penalties for failing to comply with Beneficial Ownership Interest reporting requirements.  The penalty applies to 1) Failing to file the report as required, 2) Late filing, 3) Filing erroneous information, and 4) Failing to file a timely updated report as required.  
• Both the entity and the person responsible for filing can face penalty.
• A person who willfully violates the BOI reporting requirement or knowingly files false information on a report may be subject to civil penalties of up to $500 for EACH DAY the violation continues. 
• A person who willfully violates the BOI reporting requirement or knowingly files false information on a report may also face criminal charges and penalties of up to two years in prison and $10,000.  
• Does $500 per day seem low?  Don’t worry; that’s just what was when the statute became law.  Fortunately, it’s adjusted for inflation and is currently (2024) $591 per day.
• NOTE: The word willfully is italicized because, as it stands right now, we do not know what it means.  Nor do we know how assessment takes place.  Will penalties be computer-generated (assessed automatically) or assessed after an investigatory process?  Considering FinCEN’s limited resources, automated assessment seems more likely, meaning those facing penalties must prove the violation was not willful.  But we’ll see…  
  Additionally, as I understand it, there are currently no reasonable cause exceptions for penalty abatement, meaning there is no systemic process to remove penalties once assessed.

Updating Reports – BOI Reporting is Not One-and-Done for Most: 

• Each entity required to file must do so by the deadlines listed above.  However, as a practical matter, this does not mean reporting is over.  The entity must file a revised (updated) report if and when any of the following occur:
  • Entity changes its address
  • Other entity changes, such as a fictitious name (DBA) filing
  • Changes in officers, board of directors, or other beneficial owners
  • Death of a Beneficial Owner
  • Change in any beneficial owner’s name, address, ID number (such as a new driver’s license in a different state),
  • A new mob boss or associate takes substantial control of an LLC money-laundering enterprise.  
  • Ironically, termination of an entity does NOT require an updated filing.  So, the personal information of each beneficial owner remains in the database, even if the entity no longer exists. 

• As you can see, as a practical matter, updating the Beneficial Owner Report will be a regular occurrence for many entities.
  
  For example, many homeowners’ associations must file beneficial ownership reports.   If the HOA elects new board members at each annual meeting, an updated BOI report is due within 30 days of the change.  It may face a daily-assessed penalty of ~$600 daily if it does not.
  
  What if a board member moves from one home in the development to another?  File an updated report within 30 days or risk a penalty.  
  
  What if a board member gets married and changes their legal name?  File an updated report.

• Compliance Nightmare: These filing requirements and the fact that both the entity and a responsible person can face penalty begs several questions: 1) Who in their right mind will accept responsibility for BOI filing?  2) How will an entity ensure beneficial owners remain cognizant of and timely communicate update triggers?  And, 3) Will insurance cover entities for reporting missteps?

WHY?

• Why does the law require Beneficial Ownership Reporting?  Here’s the rationale as presented at a recent seminar: The Beneficial Ownership Interest Reporting (BOIR) requirements included in the Corporate Transparency Act exist to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activities while minimizing the burden on entities doing business in the United States.
• I have deleted my practical, common-sense critique of BOIR’s alleged function and replaced it with a small business owner’s interpretation: “Wait, …What!?!”

WAIT, …WHAT!?

• Let’s set aside the U.S. Constitution, the undue burden BOI reporting places on the business community, and the requirement’s true intent and review some statements shouted out by attendees at a recent training seminar:
• “Yeah, because Pablo Escobar and Al Capone will follow the rules and include their names in this report!”
• “Wouldn’t it just be easier to tell terrorists, drug dealers, and money launders not to form LLCs?!  Because that’s all this does!”
• “They know this is ridiculous, right?”
• “What!?”

More Unpopular Facts:

• According to the American Bar Association, the Corporate Transparency Act and its beneficial owner reporting requirement “places a significant burden on small businesses required to collect beneficial ownership information.”
• An estimated 32 million entities are required to complete and file BOI reports.  Of this number, 80% have NOT filed as of November 1, 2024.  
• Several lawsuits challenge the constitutionality of Beneficial Ownership Reporting and the Corporate Transparency Act.  One of the first was National Small Business United v. Yellen.  In this case, the court determined it was unconstitutional.  FinCEN, however, has appealed the decision.  As a result, National Small Business United and ONLY their members can wait to file BOI reports until the matter gets settled.  HOWEVER, ALL OTHER ENTITIES ARE REQUIRED TO FILE BY THE DEADLINE.
• In the meantime, several other constitutional cases have challenged the Corporate Transparency Act, including 1) Robert J. Gargasz Co. v. Yellen; 2) William Boyle v. Janet Yellen et al.; 3) Small Business Association of Michigan et al. v. Yellen et al.; 4) Texas Top Cop Shop, Inc. et al. v. Merrick Garland et al.; 5) Black Economic Council of Massachusetts, Inc., et al. v. Janet Yellen; and 6) Michael Firestone, et al., v. Janet Yellen, et al.  Click here for a summary of the cases.

Final Thought: Hopefully, the courts will strike down BOI reporting, or Congress will change the statute to remove what seems like an excessive and unrealistic burden from small business owners. 

In the meantime, regardless of how you feel, please complete your Beneficial Owner Interest Reports (and you can do so by clicking here) by the end of the year of as soon as possible.