How to Ensure Compliance with BOI Reporting Requirements: A Guide for Financial Advisors and Their Clients
The Corporate Transparency Act (CTA) introduced new Beneficial Ownership Information (BOI) reporting requirements for many U.S. businesses. As a financial advisor, you need to understand these requirements to guide your clients effectively.
This guide covers key aspects of BOI reporting compliance, including:
- Steps to ensure compliance
- Identifying if a business falls under reporting requirements
- Penalties for non-compliance
- Exemptions for small businesses
- Protecting against fraudulent BOI reporting scams
Key Steps to Ensure Compliance with BOI Reporting Requirements
1. Determine if your client's business is a reporting company
Most domestic entities created by filing with a state secretary of state office are considered reporting companies. This includes corporations, limited liability companies (LLCs), and limited partnerships [1].
2. Identify beneficial owners
A beneficial owner is an individual who directly or indirectly:
- Exercises substantial control over the reporting company
- Owns or controls at least 25% of the reporting company's ownership interests
3. Gather required information
For each beneficial owner, collect:
- Full legal name
- Date of birth
- Current residential address
- Unique identifying number from an acceptable identification document
- Image of the identification document
4. File the BOI report
Submit the report through FinCEN's online filing system [2].
5. Meet filing deadlines
- Existing companies: File by January 1, 2025
- Companies formed in 2024: File within 90 days of formation
- Companies formed after January 1, 2025: File within 30 days of formation [3]
6. Update information
File updated reports within 30 days of any changes to previously reported information [4].
How to Identify if a Business Falls Under BOI Reporting Requirements
Ask these questions:
1. Is the business a domestic entity created by filing with a state office?
2. Is it a foreign entity registered to do business in the U.S.?
3. Does it fall under any of the 23 exemptions?
Common exemptions include:
- Public companies
- Banks and credit unions
- Tax-exempt entities
- Large operating companies with over 20 full-time U.S. employees and more than $5 million in gross receipts [5]
If the answer to questions 1 or 2 is yes, and the business doesn't qualify for an exemption, it's likely a reporting company.
Penalties for Non-Compliance with BOI Reporting
FinCEN imposes severe penalties for non-compliance:
Civil penalties:
- Up to $591 per day for ongoing violations
Criminal penalties:
- Fines up to $10,000
- Imprisonment for up to 2 years [6]
Both individuals and entities can be held liable for violations.
Exemptions for Small Businesses Under BOI Reporting Requirements
While many small businesses must report, some exemptions exist:
1. Inactive entities
To qualify, a business must:
- Have been formed before January 1, 2020
- Not be engaged in active business
- Not be owned by a foreign person
- Have no change in ownership in the last 12 months
- Have not sent or received funds over $1,000 in the last 12 months
- Hold no assets [7]
2. Subsidiaries of exempt entities
If a company is wholly owned by one or more exempt entities, it may also be exempt [8].
How to Protect Your Business from Fraudulent BOI Reporting Scams
As BOI reporting becomes mandatory, scammers are exploiting the situation. Protect your clients by advising them to:
1. Use only official channels
File reports only through the official FinCEN website [9].
2. Be wary of unsolicited communications
FinCEN doesn't initiate contact about BOI reporting via email, phone, or mail [10].
3. Verify deadlines
Scam letters often show false deadlines. Confirm actual deadlines on the FinCEN website [10].
4. Never pay fees for filing
BOI reporting is free. Any request for payment is fraudulent [9].
5. Protect sensitive information
Never share personal or business information with unverified parties [10].
6. Report suspicious activity
Encourage clients to report suspected scams to the Better Business Bureau Scam Tracker [10].
Additional Considerations for Financial Advisors
As you guide clients through BOI reporting, consider these points:
Educate clients early
Start discussions about BOI reporting well before deadlines. Many clients may be unaware of these new requirements.
Assess impact on business structures
BOI reporting may influence decisions about entity formation and ownership structures. Review existing structures with clients to ensure optimal compliance and privacy.
Coordinate with legal counsel
BOI reporting intersects with legal and compliance issues. Collaborate with clients' legal advisors to ensure comprehensive guidance.
Stay informed about updates
FinCEN continues to issue guidance on BOI reporting. Monitor their website for the latest information and FAQs.
Consider technology solutions
Explore software options that can help track beneficial ownership information and generate reports. This can streamline the reporting process for clients with complex ownership structures.
Develop a compliance checklist
Create a standardized process for helping clients comply with BOI reporting requirements. This ensures consistency and reduces the risk of overlooking critical steps.
Address privacy concerns
Some clients may be hesitant to disclose ownership information. Explain the confidentiality measures in place and the limited circumstances under which FinCEN can disclose this information.
Plan for ongoing compliance
BOI reporting isn't a one-time event. Help clients establish processes for monitoring changes that would require updated reports.
Leverage BOI reporting for client benefit
While primarily a compliance requirement, BOI reporting can offer insights into a client's business structure. Use this opportunity to review and optimize ownership arrangements.
Prepare for increased scrutiny
BOI reporting is part of a broader trend towards financial transparency. Advise clients that this may lead to increased scrutiny of business structures and transactions.
Document your advice
Maintain detailed records of the guidance you provide regarding BOI reporting. This protects both you and your clients in case of future inquiries or audits.
Consider international implications
For clients with international operations or ownership, assess how BOI reporting interacts with similar requirements in other jurisdictions.
Evaluate impact on M&A activities
For clients involved in mergers, acquisitions, or sales of businesses, consider how BOI reporting might affect these transactions.
Assess cybersecurity measures
Given the sensitive nature of BOI data, review clients' cybersecurity practices to ensure this information is adequately protected.
Prepare for questions from stakeholders
Clients may face inquiries about BOI reporting from investors, partners, or other stakeholders. Help them develop clear communication strategies.
Monitor for unintended consequences
As BOI reporting is implemented, watch for any unintended effects on clients' businesses or the broader market. Be prepared to adjust strategies accordingly.
Consider BOI reporting in succession planning
For clients engaged in succession planning, factor BOI reporting requirements into ownership transition strategies.
Evaluate impact on privacy-focused clients
Some clients may have legitimate reasons for desiring privacy in their business dealings. Explore legal ways to balance compliance with privacy concerns.
Assess potential for expanded reporting
Stay alert for potential expansions of BOI reporting requirements. Help clients prepare for possible future obligations.
Conclusion
BOI reporting represents a significant shift in business transparency requirements. As a financial advisor, your role in guiding clients through this process is crucial. By staying informed, developing robust compliance processes, and addressing client concerns proactively, you can help ensure smooth compliance while identifying opportunities to add value to your advisory services.
Remember, while this guide provides a comprehensive overview, BOI reporting requirements are complex and subject to change. Always refer to the latest FinCEN guidance and consult with legal professionals when necessary to ensure full compliance.
Citations:
[4] https://www.squire.com/resources/blog/ultimate-guide-boi-reporting-compliance-best-practices/
[6] https://www.pbmares.com/beneficial-ownership-information-report/
[8] https://natlawreview.com/article/corporate-transparency-act-requires-reporting-beneficial-owners
[10] https://www.corpnet.com/blog/boi-report-fines-penalties/
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors
How to Ensure Compliance with BOI Reporting Requirements: A Guide for Financial Advisors and Their Clients
The Corporate Transparency Act (CTA) introduced new Beneficial Ownership Information (BOI) reporting requirements for many U.S. businesses. As a financial advisor, you need to understand these requirements to guide your clients effectively.
This guide covers key aspects of BOI reporting compliance, including:
- Steps to ensure compliance
- Identifying if a business falls under reporting requirements
- Penalties for non-compliance
- Exemptions for small businesses
- Protecting against fraudulent BOI reporting scams
Key Steps to Ensure Compliance with BOI Reporting Requirements
1. Determine if your client's business is a reporting company
Most domestic entities created by filing with a state secretary of state office are considered reporting companies. This includes corporations, limited liability companies (LLCs), and limited partnerships [1].
2. Identify beneficial owners
A beneficial owner is an individual who directly or indirectly:
- Exercises substantial control over the reporting company
- Owns or controls at least 25% of the reporting company's ownership interests
3. Gather required information
For each beneficial owner, collect:
- Full legal name
- Date of birth
- Current residential address
- Unique identifying number from an acceptable identification document
- Image of the identification document
4. File the BOI report
Submit the report through FinCEN's online filing system [2].
5. Meet filing deadlines
- Existing companies: File by January 1, 2025
- Companies formed in 2024: File within 90 days of formation
- Companies formed after January 1, 2025: File within 30 days of formation [3]
6. Update information
File updated reports within 30 days of any changes to previously reported information [4].
How to Identify if a Business Falls Under BOI Reporting Requirements
Ask these questions:
1. Is the business a domestic entity created by filing with a state office?
2. Is it a foreign entity registered to do business in the U.S.?
3. Does it fall under any of the 23 exemptions?
Common exemptions include:
- Public companies
- Banks and credit unions
- Tax-exempt entities
- Large operating companies with over 20 full-time U.S. employees and more than $5 million in gross receipts [5]
If the answer to questions 1 or 2 is yes, and the business doesn't qualify for an exemption, it's likely a reporting company.
Penalties for Non-Compliance with BOI Reporting
FinCEN imposes severe penalties for non-compliance:
Civil penalties:
- Up to $591 per day for ongoing violations
Criminal penalties:
- Fines up to $10,000
- Imprisonment for up to 2 years [6]
Both individuals and entities can be held liable for violations.
Exemptions for Small Businesses Under BOI Reporting Requirements
While many small businesses must report, some exemptions exist:
1. Inactive entities
To qualify, a business must:
- Have been formed before January 1, 2020
- Not be engaged in active business
- Not be owned by a foreign person
- Have no change in ownership in the last 12 months
- Have not sent or received funds over $1,000 in the last 12 months
- Hold no assets [7]
2. Subsidiaries of exempt entities
If a company is wholly owned by one or more exempt entities, it may also be exempt [8].
How to Protect Your Business from Fraudulent BOI Reporting Scams
As BOI reporting becomes mandatory, scammers are exploiting the situation. Protect your clients by advising them to:
1. Use only official channels
File reports only through the official FinCEN website [9].
2. Be wary of unsolicited communications
FinCEN doesn't initiate contact about BOI reporting via email, phone, or mail [10].
3. Verify deadlines
Scam letters often show false deadlines. Confirm actual deadlines on the FinCEN website [10].
4. Never pay fees for filing
BOI reporting is free. Any request for payment is fraudulent [9].
5. Protect sensitive information
Never share personal or business information with unverified parties [10].
6. Report suspicious activity
Encourage clients to report suspected scams to the Better Business Bureau Scam Tracker [10].
Additional Considerations for Financial Advisors
As you guide clients through BOI reporting, consider these points:
Educate clients early
Start discussions about BOI reporting well before deadlines. Many clients may be unaware of these new requirements.
Assess impact on business structures
BOI reporting may influence decisions about entity formation and ownership structures. Review existing structures with clients to ensure optimal compliance and privacy.
Coordinate with legal counsel
BOI reporting intersects with legal and compliance issues. Collaborate with clients' legal advisors to ensure comprehensive guidance.
Stay informed about updates
FinCEN continues to issue guidance on BOI reporting. Monitor their website for the latest information and FAQs.
Consider technology solutions
Explore software options that can help track beneficial ownership information and generate reports. This can streamline the reporting process for clients with complex ownership structures.
Develop a compliance checklist
Create a standardized process for helping clients comply with BOI reporting requirements. This ensures consistency and reduces the risk of overlooking critical steps.
Address privacy concerns
Some clients may be hesitant to disclose ownership information. Explain the confidentiality measures in place and the limited circumstances under which FinCEN can disclose this information.
Plan for ongoing compliance
BOI reporting isn't a one-time event. Help clients establish processes for monitoring changes that would require updated reports.
Leverage BOI reporting for client benefit
While primarily a compliance requirement, BOI reporting can offer insights into a client's business structure. Use this opportunity to review and optimize ownership arrangements.
Prepare for increased scrutiny
BOI reporting is part of a broader trend towards financial transparency. Advise clients that this may lead to increased scrutiny of business structures and transactions.
Document your advice
Maintain detailed records of the guidance you provide regarding BOI reporting. This protects both you and your clients in case of future inquiries or audits.
Consider international implications
For clients with international operations or ownership, assess how BOI reporting interacts with similar requirements in other jurisdictions.
Evaluate impact on M&A activities
For clients involved in mergers, acquisitions, or sales of businesses, consider how BOI reporting might affect these transactions.
Assess cybersecurity measures
Given the sensitive nature of BOI data, review clients' cybersecurity practices to ensure this information is adequately protected.
Prepare for questions from stakeholders
Clients may face inquiries about BOI reporting from investors, partners, or other stakeholders. Help them develop clear communication strategies.
Monitor for unintended consequences
As BOI reporting is implemented, watch for any unintended effects on clients' businesses or the broader market. Be prepared to adjust strategies accordingly.
Consider BOI reporting in succession planning
For clients engaged in succession planning, factor BOI reporting requirements into ownership transition strategies.
Evaluate impact on privacy-focused clients
Some clients may have legitimate reasons for desiring privacy in their business dealings. Explore legal ways to balance compliance with privacy concerns.
Assess potential for expanded reporting
Stay alert for potential expansions of BOI reporting requirements. Help clients prepare for possible future obligations.
Conclusion
BOI reporting represents a significant shift in business transparency requirements. As a financial advisor, your role in guiding clients through this process is crucial. By staying informed, developing robust compliance processes, and addressing client concerns proactively, you can help ensure smooth compliance while identifying opportunities to add value to your advisory services.
Remember, while this guide provides a comprehensive overview, BOI reporting requirements are complex and subject to change. Always refer to the latest FinCEN guidance and consult with legal professionals when necessary to ensure full compliance.
Citations:
[4] https://www.squire.com/resources/blog/ultimate-guide-boi-reporting-compliance-best-practices/
[6] https://www.pbmares.com/beneficial-ownership-information-report/
[8] https://natlawreview.com/article/corporate-transparency-act-requires-reporting-beneficial-owners
[10] https://www.corpnet.com/blog/boi-report-fines-penalties/
Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation. Information was obtained from sources believed to be reliable but was not verified for accuracy. It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.
Savvy Wealth Inc. is a technology company. Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”. All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth. The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors
