This blog post is an update to our original post on the 2024 BOI reporting requirement (due for most existing businesses by January 1, 2025).
While the constitutionality of this requirement had been challenged in the Circuit Court, the reporting requirement has only been stayed for a small subset of US companies, and we do not expect the Supreme Court to rule on this in time to negate this requirement by January 1, 2025.
Do not wait any longer to gather the necessary information. Even if you choose to wait to file until closer to January 1, you do not want to get into December and find out you need more information that you'd thought.
Note that the information required for EVERY beneficial owner includes pictures of the front and back of a valid US drivers license. It's for this reason that we recommend most business owners simply file this themselves on the FINCEN.gov website rather than pay a third-party vendor. Keep in mind that there was a lot of fraud related to specialty ERC/PPP shops that opened specifically to address that need, so please be careful.
FINCEN has indicated that they expect every reporting company to have at least ONE beneficial owner. So unless your business meets one of the exemptions, in general, it will be required to report before year end.
For most companies with a straight-forward ownership structure, our last post provided enough information to determine if you meet the requirements. We still recommend you read through the Small Business Compliance Guide, provided by FINCEN, as your final authority.
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In this post, I wanted to draw your attention to some people that MIGHT qualify as Beneficial Owners, even if they're not shareholders in the company. And further below, I also wanted to walk through a multi-tiered partnership to show how complex this could get for certain entities.
Direct from FINCEN: A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over a reporting company, OR (2) owns or controls at least 25 percent of a reporting company’s ownership interests.
Substantial Control
The first definition of a Beneficial Owner (page 24 of the PDF) includes anyone who exercises Substantial Control over a reporting company. Note that this does not always necessitate ownership - it could include officers (such as CFO, COO, or Department VP).
Note here that a Beneficial Owner is an individual, and so a trust would not be. But the Guide also says that a trustee could be a Beneficial Owner of the top-level reporting company (as could the Beneficiary of the trust, following the Interest rules below).
Ownership Interest
The second definition of a Beneficial Owner applies to "any individuals who own, directly or indirectly, 25% or more of the capital OR profit interests in a company". There are many situations that are not so straightforward, if your company has multiple classes of shares or convertible instruments or guaranteed payments. Consult the Guide and an attorney.
But one use-case I'll point out, see how indirect ownership could be traced through multiple ownership tiers (page 34 of the PDF). The individuals in circles are Beneficial Owners of the top-level Reporting Company, the individuals in triangles are not (though in our read of this slightly-misleading graphic, Individuals D & E would be Beneficial Owners of Company Z, a separate and distinct Reporting Company).
The Small Business Compliance Guide provides many questionnaires to work through (pages 26ff), and further explanation about how the attribution rules apply.
Exemptions From Reporting
Finally, there are 5 exceptions (Page 36 of the PDF), where someone might otherwise qualify as a beneficial owner but is subsequently exempted from being included in the reporting:
Minor Child (the parent or legal guardian information is collected instead);
Nominee, intermediary, custodian, or agent;
Employee (must pass all three listed tests);
Inheritor of a future interest;
Creditor.
Not to complicate matters, but the "directly or indirectly" definition for tax attribution rules (under Revenue Code §318) traditionally trace ownership through familial relationships. We have NOT seen these sorts of attribution rules yet applied to BOI reporting, at least not for this first year (eg. If a wife owns 10% of a company, and her husband owns 15% of the company, do they, indirectly, both own 25% of the company, and fall under the Beneficial Ownership requirement?). But it will be something we expect FINCEN will have to address. And these are the kinds of questions CPAs can't answer, and lawyers and the courts will need to weigh in on.
Final Note: BOI Reporting MUST be updated with FINCEN within 30 days of ANY change of the above information (including closing the company). So this reporting requirement is not a one-and-done event.
