In an era of increasing transparency and regulatory oversight, it’s crucial for businesses and individuals to understand the reporting requirements surrounding financial activities. Two key players in this regulatory framework are the FinCEN and the BOI reporting requirements. Let’s break down what these entities and regulations entail, why they matter, and how to ensure compliance.
What is FinCEN?
FinCEN, short for Financial Crimes Enforcement Network, is a bureau of the U.S. Department of the Treasury tasked with safeguarding the financial system from illicit activities like money laundering and terrorist financing. It enforces regulations and laws designed to track suspicious financial transactions, ensuring that criminals can’t exploit the financial system.
FinCEN Reporting Requirements
Foreign Bank and Financial Accounts (FBAR)
One of the most well-known FinCEN reporting requirements is the FBAR, which has been around since 1970. Any U.S. person (including individuals, corporations, LLCs, partnerships, trusts, and estates) who has financial interest in, or signature authority over, foreign financial accounts that exceed an aggregate value of $10,000 at any time during the calendar year must file an FBAR.
Failure to report such accounts can result in significant penalties, including fines and, in severe cases, imprisonment.
Key Points on FBAR:
- Filing Deadline: A form added to your annual tax return. Deadlines follow suit of April 15 (automatically extended to October 15 if not filed).
- Who Needs to File: U.S. citizens, resident aliens, and entities with foreign accounts over $10,000 at any point during the year.
- Penalties: Penalities range given severity and intention. Criminal cases can go as high as 10-year jail time and $500k fines.
New Beneficial Ownership Information (BOI) Reporting
The FBAR is a form I’ve seen on tax returns for years, but the beneficial ownership information (BOI) reporting requirements are new. My concern is, the public doesn’t seem to know about this requirement or don’t realize it’s applicable to their situation. Starting January 2024, the U.S. will enforce new rules requiring certain businesses to disclose their BOI to FinCEN. This is part of the Corporate Transparency Act (CTA), which aims to prevent shell companies from being used for illicit purposes like money laundering, tax evasion, and terrorism financing. It’s also a bit of alphabet soup!
What is BOI?
BOI refers to the individuals who exercise substantial control or own at least 25% of a company. These individuals are often the true decision-makers, even if they aren’t listed as company officers.
Who Must Report BOI?
The BOI reporting requirements apply to many domestic and foreign companies doing business in the U.S., including:
- Corporations and LLCs registered in the U.S.
- Partnerships and Limited Liability Partnerships.
- Trusts owning or controlling a reporting entity.
- Foreign entities registered to do business in the U.S.
Who is Exempt?
Several types of entities are exempt from BOI reporting, such as:
- Publicly traded companies.
- Large operating companies with more than 20 full-time U.S. employees and $5 million in gross receipts.
- Certain regulated entities like banks, insurance companies, and registered investment companies.
What Information Must Be Reported?
The BOI report will include:
- Company name
- Company EIN or identifier
- Identifying information of all parties involved
- Full legal name.
- Date of birth.
- Residential or business address.
- A unique identifying number from an acceptable document (such as a passport or driver’s license). A picture of this document is needed as well.
For a solo-business owner, you could simply go to BOI and provide your personal information directly on the company filing. However, there is an alternative option that is highly recommended, especially in cases where more than 1 party is involved.
That option is to first go to FinCen and create a FinCen identifier. Here you would create a user name/password at login.gov. Basically, you, your partner, and/or key employees each go to the FinCen site to load their private information directly which yields a unique FinCen identifier. You then take your identifier, and that of your partners and employees, to the BOI site and type in those numbers when disclosing the various parties. The benefit of this is 2-fold.
- First, your partner and/or key employees don’t have to convey to you their personal info and photo identification. They’re in control through their log-in and simply share a code with you for the BOI report.
- Second, and more importantly, they are in control of being able to update their info as needed. While you only need to file the BOI report once (apart from disclosing any changes or dissolution), you need to stay on top of updates to passport and driver’s licenses. If you file everyone’s info directly through BOI, you as the filer need to be on top of any expiring information. If you create FinCen identifiers for each person, the person is now in charge of updating their data directly which automatically is linked to your BOI filing.
As a tip, I would recommend that any filer should set a calendar reminder to update FinCen at the time of their license or passport expiration date so this step isn’t forgotten. You only have 30-days to report the change.
Deadlines and Compliance
The deadlines for compliance vary depending on whether the entity was created before or after January 1, 2024:
- Existing entities: Must file their BOI reports by January 1, 2025.
- Newly formed entities: Have 30 days from their date of formation to file.
- If the LLC ceased to exist on or after January 1, 2024, you must file a BOI report with FinCEN. Even LLCs that wound up their affairs mid-year 2024, you are still considered a legal entity for a portion of the year and need to file.
Why These Reporting Requirements Matter
Both FBAR and BOI reporting aim to create transparency and combat financial crimes. While compliance can be time-consuming and complex, failure to meet these requirements can result in steep penalties. Non-compliance with FBAR and BOI can lead to heavy fines and even criminal charges.
Moreover, these rules are designed to protect the integrity of the financial system, making it harder for bad actors to use the U.S. financial infrastructure for illegal activities.
Practical Tips for Compliance
- Stay Organized: Keep detailed records of foreign accounts and company ownership structures to ensure timely and accurate reporting.
- File FBAR Annually: If you’re unsure whether your foreign accounts meet the $10,000 threshold, it’s better to file than to risk penalties.
- Understand Beneficial Ownership: For business owners, ensure you have clear documentation of who owns and controls the business. Even a non-owner but key employee may be deemed as having a controlling interest. Again, it’s likely better to file an extra person than risk penalties for underreporting.
- Work with Professionals: Tax attorneys, CPAs, and compliance experts can provide essential guidance in navigating these complex regulations. It is recommended that business owners work with an attorney for the BOI reporting requirements, but CPAs are also allowed to provide guidance. Other professionals, such as myself, are asked to educate clients about the existence of this requirement but aren’t in a position advise on the complexities related to any specific case. Keep in mind, hiring professionals to advise on these new and gray requirements could be costly. It may make more sense financially to simply over-report than under-report.
- Use FinCEN’s Online System: Both FBAR and BOI reports are filed through FinCEN’s online platform, which streamlines the reporting process.
Final Thoughts
FinCEN and BOI reporting requirements represent critical steps in the U.S. government’s efforts to combat financial crimes and ensure transparency. Whether you’re an individual with foreign accounts or a business owner, it’s vital to stay informed and compliant with these regulations. By understanding your obligations and filing reports on time, you can avoid costly penalties.
