For small businesses in the U.S., a federal compliance clock is ticking down like a high school basketball game clock. While the new compliance game is only in its first quarter, it will be “game over” if small business owners fail to take action this year.
Businesses formed before Jan. 1, 2024, must comply by Jan. 1, 2025. Businesses formed after Jan. 1, 2024, must comply within 90 days after receiving a notice of creation.
The National Federation of Independent Businesses (NFIB) said the stakes are high for the more than 32 million companies that are required to comply with the Business Ownership Information (BOI) law. Companies with 20 or fewer full-time employees whose annual gross receipts total less than $5 million are subject to the BOI rules.
BOI was created by Congress through the Corporate Transparency Act (CTA), which passed in 2021. The BOI law regulates criminal activities regarding national security, including money laundering and terrorism financing. Companies will be required to report details about their business ownership.
NFIB Vice President of Federal Government Relations Jeff Brabant said the law seeks to eradicate laundering money through shell companies. Brabant said small businesses are targeted because regulators assume criminal activity is easier to hide in a smaller company with fewer employees.
RVDA President Phil Ingrassia said, “Unfortunately, because there are bad actors out there who are trying to hide and launder money, these types of regulations impact legitimate businesses, like RV dealers.”
Businesses in any industry nationwide must report information to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a United States Department of Treasury bureau created to safeguard financial systems from illicit use and combat money laundering and its related crimes, including terrorism.
Ingrassia said the law is “something that dealers are going to want to pay attention to and make sure they file before that Jan. 1 deadline.”
Various factors woven into the law mirror basketball components.
Who Are the Players?
Reporting companies are defined as any corporation, LLC or other entity created by filing a document with a secretary of state’s office or similar U.S. office. Reporting businesses must have a U.S.-based operating office.
Foreign companies who do business in the U.S. are on the court as well. Foreign companies engaged in U.S. business who have filed a document with a secretary of state’s office, or a similar office must report.
Companies can file for an exemption if they qualify. Although many RV businesses may not qualify, there are 23 exemption categories. To learn more about exemptions, click here.
Team Players: Types of Information
Just as there are three types of basketball players—guards, forwards and centers—there are three reporting types—the business, beneficial owners and company applicants.
The business’ reporting requires information about the company, such as its physical location.
The beneficial owner type falls into two groups. Beneficial owners include anyone who directly or indirectly exercises substantial control over a company or owns it.
The definition includes people who control at least 25% of the company’s ownership interests. These interests include holding equity or stock; capital or profits; convertible instruments and puts, calls and options. Any other instrument, contract, arrangement, understanding or relationship establishing ownership is considered an ownership interest.
Senior officers such as presidents, CEOs, chief financial officers and chief operating officers could qualify. These people have the authority to appoint or remove senior officers or the majority of the board. They direct, determine and influence important decisions such as major expenditures, company reorganization, asset status, compensation, contracts and amending governance documents.
Exemptions to the beneficial owner definition include minor children; nominees, intermediaries, custodians and agents; future inheritors; employees who are not senior officers and creditors.
The company applicant type encompasses people who created the company by submitting a document to the designated government office. An applicant also can be the person who controls the company-creating document filing. A company may have one or two applicants, never more.
Gameplan: What is Reported?
While basketball players hold different skills, each BOI type holds different reporting requirements.
Company reporting information includes the company’s full legal name and any company trade or “doing business as” names. The company’s complete street address, state of formation and IRS taxpayer identification number are required.
Each beneficial owner and company applicant must report their full legal name, date of birth and residential street address. A unique identification number and issuing jurisdiction are required. Examples include a passport, state identification document or driver’s license. The identifying document’s image must be included with the report.
Gametime: How to File a Report
Reports can be filed for free through the FinCEN website.
Through FinCEN’s website, reporting companies can fill out an online form or download a PDF to complete and send to FinCEN. Reports must be updated any time reported information changes. The change must be reported within 30 days.
When filing an update through FinCEN, the entire report must be resubmitted.
Submissions also can be made through a third-party provider for a fee.
Third-party service providers grant companies the ability to update information without re-submitting an entire report. The providers maintain data and monitor submission progress.
Some providers’ platforms can enable beneficial owners to submit their own information.
BOI third-party providers include CT Corp., LegalZoom or Block Advisors. To learn more about third-party providers, click here.
Fouls and Penalties
The law has penalties to ensure companies are playing by the rules.
Penalties for willfully failing to file a complete form or filing fraudulent information include civil penalties. For every violation day, a company can be fined $500 until the report is remedied. Companies can be fined up to $10,000. Under criminal penalties, violators could face up to two years of imprisonment.
Guarding Against Potential Injuries
FinCEN is responsible for protecting collected information. The CTA outlines FinCEN safety and security policies.
FinCEN can share information with select groups. Federal agencies engaged in national security and law enforcement activities can request information. Financial institutions monitoring money laundering are another sector that can request information. State, local or tribal law enforcement agencies of competent jurisdiction courts may request information.
The Treasury Department may access information for tax administration purposes. Federal agencies can request information on behalf of foreign country law enforcement agencies or judges. Financial institutions, subject to due diligence requirements, may access the information.
To receive the information, groups must complete an application and be approved. Violators are subject to criminal and civil penalties.
Information cannot be disclosed by U.S. officers or employees; a state, local or tribal agency officer or employee; a financial institution or a rep agency employee or officer who receives information under the categories.
After a company is dissolved, FinCEN will keep information collected for at least five years.
FinCEN released a Financial Trend Analysis Report that highlighted 2021 threats and trends in its database. FinCEN provided action steps to counter and safeguard against these threats.
Challenging the Call
The National Small Business Association (NSBA) filed a case against the Treasury Department and FinCEN on the grounds that the CTA law is unconstitutional. On March 1, the federal case in the Northern District of Alabama, Northeastern Division, ruled the CTA as unconstitutional. FinCEN is complying with the court order. The case can be appealed to the Eleventh Circuit Court of Appeals.
Because of the district court ruling, FinCEN will not enforce CTA reporting requirements against plaintiff Isaac Winkles or any other NSBA member, as of March 1. The association has more than 65,000 members.
For all other small businesses, the game clock is ticking. The FinCEN net is open and businesses can shoot their report through FinCEN’s website.
For more information, access the following links:
