New FINCEN Requirement: What Business Owners Need to Know About the New Mandatory Beneficial Ownership Information Report
The Financial Crimes Enforcement Network (FINCEN) introduced regulations impacting business owners of most entities across the United States. These changes are an effort to enhance financial transparency and combat illegal financial activities. As a business owner, it is Important to understand these requirements and ensure compliance to avoid the steep penalties associated with noncompliance. Here’s a breakdown of what you need to know.
Background
FINCEN’s, a bureau of the U.S. Department of the Treasury, has been tasked with safeguarding the financial system by combating money laundering and other illegal activities and promoting national security through collection, analysis, and dissemination of financial intelligence. The new requirement, effective from January 1, 2024, mandates detailed reporting from businesses and focuses on beneficial ownership information.
What does Beneficial Ownership Mean?
Beneficial ownership includes individuals who own or control a company. Under the new rule, businesses must report information about the following:
- Beneficial Owners: Individuals who, directly or indirectly, own 25% or more of the company’s equity interests, or who exercise substantial control over the company.
- Company Applicants: Individuals who file the formation documents for a company or register the company to do business.
Key Requirements
- Reporting Obligations: Businesses are required to file beneficial ownership information with FINCEN. This includes providing names, birth dates, addresses, and unique identifying numbers from acceptable documents (passport, driver’s license, etc.).
- Timeline for Reporting:
- Existing Businesses: Businesses formed before January 1, 2024, must report their beneficial ownership information by December 31, 2024
- New Businesses: Businesses formed after January 1, 2024, must file this information within 90 days of their formation or registration. Businesses formed after January 1, 2025 must file within 30 days of formation or registration.
- Updates: Businesses must also update their beneficial ownership information within 30 days of any change which can include address changes, name changes, etc.
How does this Impact Business Owners?
Increased Compliance Costs: Business owners will have additional administrative burdens and potential costs associated with gathering, verifying, and reporting the required information.
- Enhanced Transparency: While the goal is to deter illegal activities such as money laundering and tax evasion, it means greater transparency regarding who controls and benefits from each business.
- Penalties for Non-Compliance: Noncompliance can result in significant penalties including fines, currently $500 per day in 2024(indexed for inflation),and potential criminal charges.
What Must I do to Ensure Compliance
- Identify Beneficial Owners: Identify all individuals who meet the criteria for beneficial ownership and ensure their information is accurate and updated.
- Prepare Documentation: Collect and verify all necessary documents and information required for reporting.
- Consult Professionals: If you are uncomfortable completing the online reporting form, engage your attorney or other professionals to ensure you fully understand the requirements and are compliant.
- Monitor Changes: Ensure you report changes in beneficial ownership promptly.
Conclusion
While there are some exceptions, most business owners will be required to file under the new FINCEN rules including single member LLCs, even if you just own a property within the LLC (which many people have done for estate and liability reasons.) Frequently asked questions including who needs to file, who may be exempt, and how to file can be answered directly on FINCEN’s website: https://fincen.gov/boi. While some may wish to engage a professional, others may be perfectly comfortable completing the forms and entering the necessary information without assistance and that can be done here: https://boiefiling.fincen.gov/. We encourage you to review the above references and get this completed as soon as possible. If you do plan to engage a professional, understand they may be doing this for many of their clients so reaching out soon is probably in your best interest.
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