Starting January 1st2024, all entities (domestic & foreign) will be required to report to the US government the personal information of their owners, senior officers and key individuals who make important decisions for the entity. As there is no US dollar minimum, this report concerns everyone. Below the steps you can take now to minimize the burden of this new reporting.
Why this new report?
The Beneficial Ownership information (BOI) report is an information filing: it provides data to US authorities about the entities and their key individuals. The purpose of the BOI reporting is to prevent illicit use of “shell companies” that facilitate illegal activities, money laundering, tax evasion and other criminal activities.
To know more about BOI: https://www.fincen.gov/boi
Who will have access to the information contained in the BOI?
The data contained in the BOI report will create a national registry accessible by law enforcement, government agencies, financials institutions and other officials – both domestic and foreign. Entities will transmit electronically their BOI report to the Financial Crime Enforcement Network (FINCEN) systems.
To know more about FINCEN: https://www.fincen.gov/what-we-do
Who is required to file a BOI?
As there is no minimum $ threshold, small and medium-sized entities will be required to report if they fall in any of the following categories:
- US & Foreign entities doing business in the US such as : LLC, Corporation, Trusts
- US & Foreign entities registered in the US – such as entities who have filed with the secretary of state for articles of organization , articles of incorporation, DBA etc.
Exceptions: Banks, Insurance, Utilities, Tax exempt and large company (revenue > $5 million and more than 20 full time employees) are not required to report because they are already disclosing their information to other regulated bodies.
To know more about the types of business entities in the US: https://kbfinancials.biz/investir-aux-usa-les-5-avantages-de-la-structure-juridique/
What information will be required in the BOI?
The personal information of the entity and its key individuals (BO) will be reported and includes:
- The Entity’s name, residential address, ID number, and type of filing – The ID number is the EIN of the entity or the SSN / ITIN if the entity is disregarded for tax purpose (such as a single member LLC).
- The Beneficial Owner’s (BO) name, date of birth, residential address, ID number and copy of the ID document (such as passport or driver’s license). A Beneficial owner is an individual who meets any of the following categories:
- exercises substantial control over the entity – such as senior officers (President, CFO, CEO, COO)
- has authority over who is hired or removed from the entity
- influences over decisions regarding selling / leasing / mortgaging assets
- influences over decisions regarding reorganizing, dissolving, merging the entity
- influences over financial decisions such as issuing stock, taking on debt, setting up a financing arrangement
- owns 25% or more of the interest in the entity
- The applicant’s name, date of birth, and residential address. For entities formed after 1/1/24, the applicant is any individual who assists in setting up the company, completing the registration and the filings of the entities (such as an accountant, tax professional etc).
Exceptions: A minor child, a junior employee, or a custodian are not considered Beneficial Owners.
To know more about accessing online your tax information: https://kbfinancials.biz/managing-your-irs-account-online/
What is the deadline to file the BOI?
The deadline depends on when the entity was created:
- For entities created before 1/1/24 = the original filing must be done before 1/1/25 and a subsequent filing is needed within 30 days of any changes (such as change of beneficial owner, change of address, change of name, new passport, new driver’s license)
- For entities created after 1/1/24 = the original filing must be done within 90 days of registration of the entity and then every time there is a change.
- For entities created after 1/1/25 = the original filing must be done within 30 days of registration
To know more about other deadlines: https://kbfinancials.biz/tax-calendar/
Are there penalties for failure to file?
Yes , each violation is subject to up to $10,000 and 2 years in prison. For example, if an entity does not file its original report and then does not report a change, this will count as 2 violations.
To know more about other penalties and their relief : 7 things to know if you file your US tax return late
Is there a fee to file the BOI?
Entities and individuals can file directly on the FINCEN systems for free.
4 Steps to take now before 1/1/2024:
As this reporting will require you to gather personal documents from key individuals of your organization, you will likely need some time to gather all the documents. Below 4 steps I recommend you take before the 1/1/24 deadline:
- Review the structure of your entity: you will need to list who qualifies as a “key individual” (BO) for your organization.
- Obtain the documents for your entity: you will need a copy of the registration documents (such as Article of organization and EIN letter from the IRS).
- Obtain the documents for your key individuals (BO): you will need a copy of passports and/or driver’s license of your key individuals
- Limit the exposure of your personal information: you can request a FINCEN identifier (FINCEN ID) to register your entity and individuals. This ID will protect your personal information when submitting your BOI report.
As always, bear in mind the date of this article as tax laws change over time
For assistance with your international tax needs, please contact Karine Bauer, EA, JD – HERE.
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Published: November 26th , 2023