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Navigating the New Beneficial Ownership Interest ("BOI") Reporting Requirements Amid Legal Challenges

Carla Medrano
June 7, 2024

A new law requiring the identity of millions of business owners to be reported to the Financial Crimes Enforcement Network (FinCEN) was recently ruled unconstitutional…but only for a very specific group of business owners.

Here’s what you need to know about this court case and whether your business needs to comply with the new reporting requirements.

Background

Millions of small businesses began reporting information about its owners to FinCEN in January when the new Corporate Transparency Act (CTA) took effect. The CTA requires specified businesses to file a Beneficial Ownership Information (BOI) report that identifies individuals who own at least 25 percent of the business or who have substantial control.

The BOI report asks for each beneficial owner’s legal name, date of birth and address. A copy of each owner’s driver’s license and passport (or other required identification) must also be included with the BOI report.

According to FinCEN, collecting this information is meant to protect national security by making it easier to find corruption, money laundering operations, tax evasion, and drug trafficking organizations. This ownership information will be shared with approved agencies including Federal and State law enforcement and Federal tax authorities.

Current Situation

A federal court in Alabama ruled in March that the Corporate Transparency Act is unconstitutional. However, per FinCEN, the ruling only applies to the plaintiffs in this case – the National Small Business Administration (NSBA) and its 65,000 members. FinCEN, which is appealing the court ruling, still expects all other businesses to comply with the CTA if required.

Here’s what you need to know:

Determine if your business must comply with new reporting rules. Any company created in the United States that has registered with a secretary of state or any similar office under the laws of a state or Indian tribe, or foreign companies registered to do business in the U.S., is subject to these new reporting requirements. There are, however, nearly two dozen types of businesses that are exempt from these new reporting requirements, including sole proprietors, accounting firms, insurance companies, banks, and large businesses (more than $5 million in sales, more than 20 U.S. full time employees, and a physical location in the U.S.). The full list is available on www.fincen.gov.
Know when you MUST file initial report.Filing your initial report depends on when your business was created or registered:
- Before January 1, 2024. For existing companies created before January 1, 2024, you must file your initial Beneficial Ownership Information (BOI) report, sometime this year (before January 1, 2025).
- During 2024. Companies formed during 2024 have 90 days to file their initial BOI report.
- In 2025 and beyond. The initial BOI report must be filed within 30 days of a new business being registered or created.
There are penalties for noncompliance. You may be liable for up to $5,000 or more in fines for each defined violation for non-compliance or false information provided on the form. There are also daily fines for potential errors and omissions.

While the court ruling applies to NSBA and its members, one would be hard pressed to see action taken against others until this lawsuit runs through the court system – but you never know. At least you know the current status of the situation.

As a reminder, advising on BOI is a legal matter, and we strongly encourage you to consult with your legal counsel. We recognize the complexity of this new filing requirement and are happy to help if we can. Please contact our office at 972-503-1040 to discuss your business situation.

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