Understanding FinCEN’s Beneficial Ownership Reporting Requirements (and the Risks of Non-Compliance)

In the summer of 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) launched a communications campaign “to educate the small business community about new beneficial ownership reporting requirements.” For existing companies, the obligation to file beneficial ownership reports with FinCEN took effect on January 1, 2024. For companies formed in 2024 or later, the obligation to file begins on January 1, 2025. What companies need to file, and what are the risks of non-compliance? Find out from Texas tax defense lawyer Lawrence Brown:

Understanding FinCEN’s Beneficial Ownership Reporting Requirements

The obligation to file beneficial ownership information (BOI) reports exists under the Corporate Transparency Act. As FinCEN explains:

“[T]he bipartisan Corporate Transparency Act, enacted in 2021 to curb illicit finance, requires many companies doing business in the United States to report information to [FinCEN] about the individuals who ultimately own or control them.”

Beneficial ownership reporting is part of a much larger federal effort to uncover illicit financial transactions and prosecute those involved. Along with FinCEN, the Office of Foreign Assets Control (OFAC) and various other federal authorities are involved as well; and, by requiring businesses to file BOI reports, FinCEN hopes to both: (i) prevent domestic and foreign parties from using U.S. financial institutions and markets to facilitate illicit transactions; and, (ii) identify the parties to illicit transactions so that it can pursue civil and criminal enforcement actions as warranted.

So, what is required? Under the Corporate Transparency Act, the general rule is that the following businesses (referred to as “reporting companies”) must submit BOI reports to FinCEN on an annual basis:

• Domestic corporations
• Domestic limited liability companies (LLCs)
• Domestic partnerships and other registered business entities
• Foreign companies registered to do business in the United States

However, after establishing this general requirement, the Corporate Transparency Act then goes on to identify 23 exceptions to the BOI reporting requirements. As a result, the following entities, among others, are not required to file BOI reports with FinCEN:

• Securities reporting issuers (publicly traded companies)
• Securities brokers and dealers
• Investment companies and firms
• Accounting firms
• Banks and credit unions
• Insurance companies
• Money services businesses
• Tax-exempt entities
• Subsidiaries of certain exempt entities
• “Inactive” entities

Except with regard to “inactive” entities, these exceptions exist because these types of entities generally have sufficient reporting requirements already. FinCEN has published a Small Entity Compliance Guide that includes checklists company owners and executives can use to determine if any of the 23 BOI reporting exemptions apply.

While the process of filing a BOI report is fairly straightforward, determining what information a company needs to disclose (and whether a company needs to disclose anything at all) can be much more complicated. Along with its Small Entity Compliance Guide, FinCEN has also published an extensive list of FAQs that provides additional information about what is required. Ultimately, however, company owners and executives are responsible for accurately assessing their reporting obligations and ensuring that they submit timely, accurate, and complete BOI reports to FinCEN as necessary.

Understanding the Risks of BOI Reporting Non-Compliance

Given that this is the case, what are the risks of BOI reporting non-compliance? As FinCEN makes clear in its FAQs: “[Y]ou could face civil and criminal penalties if you disregard your beneficial ownership information reporting obligations.”

To “disregard” a company’s BOI reporting obligations means to willfully fail to submit a timely, accurate, and complete report to FinCEN. While willful violations will likely trigger civil penalties in most cases, criminal enforcement is also a possibility, as noted in the FinCEN quote above. The current civil and criminal penalties for willful BOI reporting violations are:

• Civil Penalties – Civil penalties include $591 for each day that a violation continues (the original penalty of $500 per day under the Corporate Transparency Act is adjusted annually for inflation).
• Criminal Penalties – Criminal penalties for willful BOI reporting violations can include up to a $10,000 fine and two years of federal imprisonment.

As FinCEN notes, violations that can trigger enforcement action include, but are not necessarily limited to, “willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.” While FinCEN is unlikely to pursue criminal enforcement for relatively minor transgressions, it will be important for company owners and executives to prioritize BOI reporting compliance going forward—not only to mitigate the risk of non-compliance but also to ensure that any inadvertent violations do not raise questions of willfulness.

What Can (and Should) Companies Do to Ensure BOI Reporting Compliance in 2025 (and Beyond)?

With all of this in mind, what can (and should) company owners and executives do to ensure BOI reporting compliance in 2025 (and beyond)? Some key steps for effectively managing BOI compliance include:

1. Determining if Your Company is a Non-Exempt “Reporting Company”

The first step is to determine if your company is a non-exempt “reporting company” under the Corporate Transparency Act. This, in turn, will determine whether your company is required to file BOI reports with FinCEN annually.

2. Ensuring Compliance in 2024 (if Necessary)

If your company was in existence prior to 2024, you will need to ensure compliance for this year. If your company is already behind on its BOI reporting obligations, you will want to consult with an experienced Texas tax defense lawyer promptly—as civil penalties may be continuing to accrue, and as failing to promptly remedy filing errors can increase the risk of facing criminal enforcement.

3. Implementing BOI Reporting Compliance Policies and Procedures

Non-exempt reporting companies should implement BOI reporting compliance policies and procedures to ensure that they meet their filing obligations on an ongoing basis. This includes not only timely submitting annual BOI reports but timely submitting any necessary updated BOI reports as well.

Request an Appointment with Texas Tax Defense Lawyer Lawrence Brown

Texas tax defense lawyer Lawrence Brown has extensive experience representing clients in high-stakes FinCEN enforcement cases. If you have concerns about facing BOI-related penalties or enforcement, you can call 888-870-0025 or contact us online to request a confidential consultation.