Are you an S-Corp shareholder? Are you looking to start a new S-Corp or perhaps purchase one? If you answered yes to any of those questions take a few minutes to read this article to find out how the new Beneficial Ownership Information requirements will impact you.
Big brother has always been watching but now he wants to zoom in a little bit closer. The U.S. government has made national security a priority and this includes fighting money laundering and tax cheats.
Effective January 1, 2024 the Corporate Transparency Act requires certain reporting companies to disclose their key owners by filing a Beneficial Ownership Information report. The Financial Crimes Enforcement Network, also known as FinCEN, is the arm of the Treasury that administers the filing. There is no fee to file. However, failure to file this BOI report could result in fines and possibly jail time.
What Information is Requested on the BOI Report?
FinCEN is looking for information that will reveal the individuals behind legal entities. Beneficial owners will need to provide their physical address, date of birth and an acceptable identification document such as a driver’s license or passport. In addition, basic information about the company such as the legal or trade name, current street address and tax identification number issued must also be required.
Do We Need to Report if Our LLC is Being Taxed as an S-Corp?
Yes, if you create an LLC you will need to submit information on the beneficial owners, regardless of how it is taxed. According to FinCEN a reporting company is a corporation, LLC or other entity created by filing through the Secretary of State.
An S-Corp, just like any reporting company, will need to provide the beneficial owners as well as company applicants (if the entity was created on or after January 1, 2024). A company applicant is a person who registers the entity or files the necessary documents with the Secretary of State. Ownership includes anyone who owns at least 25% either directly or indirectly or has substantial control.
Are Officers of an S-Corp Considered Beneficial Owners?
A determining factor of which individuals must be listed on the BOI report is control. A chief financial officer, for example, exercising substantial control of an S-Corporation’s business operations or who has substantial influence on its financial matters can certainly fall under the reporting requirements.
Do I Need to File a BOI Report if I Purchase an S-Corp?
Yes, if the S-Corp has new beneficial owners then an updated BOI report should be filed within 30 days.
Do I Need to File a BOI Report if I Close My S-Corp Business?
If you have already submitted a BOI report and decide to shut down your S-Corp then no additional filing is necessary.
Who is Exempt from the Corporate Transparency Act?
Not every business or entity needs to complete a BOI report. There are some exceptions to the requirement. Publicly traded companies, most non-profits and large operating companies that have more than 20 employees and exceed $5 million in domestic income in the previous tax year are not required to submit the BOI report.
If you are a sole proprietor and you did not create an entity with the Secretary of State you are generally not required to submit your BOI information. This is true even if you operate under a business name. However, if you are a sole proprietor and you create an LLC then you would be required to report your information to FinCEN.
When is the Deadline?
A reporting company, such as an S-Corp, registered prior to January 1, 2024 has until January 1, 2025 to report beneficial ownership information. If the S-Corp was created in 2024 it has 90 days from the date registered to submit. An S-Corp created on or after January 1, 2025 will need to report within 30 days of the date registered.
What Are the Penalties for Not Filing a BOI Report?
FinCEN is serious about the BOI Report and you should be too. If you fall into the category where filing is required you should do so immediately. Intentional failure to comply or submitting a false report can result in stiff penalties including:
- $500 per day
- Up to 2 years imprisonment and a $10,000 fine
Summary
The U.S. government wants to know who your company’s beneficial owners are. As of January 1, 2024 an individual’s ownership interest in a reporting company must be disclosed. The good news is that once you file the initial report no additional filing is necessary unless you have a change in beneficial ownership. The government is serious about this and you should be too!