An Update on BOI Reporting

The January 1, 2025 deadline is in five months

Time is ticking: limited liability companies (LLCs), corporations, and other reporting companies formed before January 1, 2024 have until January 1, 2025 to file their initial beneficial ownership information report (BOIR).

If a reporting company was formed during calendar year 2024, it only has 90 days to file its BOIR, while reporting companies formed in calendar year 2025 and later only have 30 days to file their BOIRs.

This article will review what we have learned (and what we still need to know) about BOI reporting during 2024 and the potential role of the tax professional in this process.

Before reading this article, I recommend reading my two prior articles on BOI reporting for background information:

1. BOI Reporting is Coming Soon (December 26, 2023)

2. BOI Reporting from Start to Finish (January 1, 2024)

Reporting Companies

In FAQ C13, FinCEN stated that entities dissolved under state law before January 1, 2024 do not have to file a BOIR.

In FAQ C14, FinCEN stated that entities formed on or after January 1, 2024 and dissolved under state law in 2024 must file a BOIR. In addition, this FAQ clarified that entities do not have to file an additional BOIR to report the closure of the entity.

Beneficial Owners

In FAQ D12, FinCEN stated that corporate entities are generally not beneficial owners, and the beneficial owner(s) are those who indirectly own or control the reporting company via the corporate entity. There are two exceptions noted in the FAQ:

(1) A reporting company may report the name(s) of an exempt entity or entities in lieu of an individual beneficial owner who owns or controls ownership interests in the reporting company entirely through ownership interests in the exempt entity or entities; or

(2) If the beneficial owners of the reporting company and the intermediate company are the same individuals, a reporting company may report the FinCEN identifier and full legal name of an intermediate company through which an individual is a beneficial owner of the reporting company.

In FAQs D14 and D15, FinCEN stated that an individual can be a beneficial owner of an entity in a trust via their ability to control trust assets. Facts and circumstances will determine whether specific trustees, beneficiaries, grantors, settlors, and other individuals with roles in a particular trust are beneficial owners of a reporting company.

In FAQ D13, FinCEN stated that homeowner associations (HOAs) that do not fall under an exemption (e.g., tax-exempt entity) must file a BOIR, and that FinCEN expects every reporting entity, including HOAs, to have at least one beneficial owner.

Reporting Requirements

In FAQ F13, FinCEN stated that disregarded entities (i.e. certain single-member LLCs) can use either a Social Security number (SSN) or employer identification number (EIN) on its BOIR depending on the facts and circumstances:

If the disregarded entity has its own EIN, it may report that EIN as its TIN. If the disregarded entity does not have an EIN, it is not required to obtain one to meet its BOI reporting requirements so long as it can instead provide another type of TIN or, if a foreign reporting company not issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

If the disregarded entity is a single-member limited liability company (LLC) or otherwise has only one owner that is an individual with an SSN or ITIN, the disregarded entity may report that individual’s SSN or ITIN as its TIN.

If the disregarded entity is owned by a U.S. entity that has an EIN, the disregarded entity may report that other entity’s EIN as its TIN.

If the disregarded entity is owned by another disregarded entity or a chain of disregarded entities, the disregarded entity may report the TIN of the first owner up the chain of disregarded entities that has a TIN as its TIN.

To reiterate, a single-member LLC does not need to obtain an EIN simply to meet its BOIR requirements. I have seen incorrect interpretations of this FAQ on social media.

Initial Reports

In FAQ G6, FinCEN stated that if an exempt reporting company formed before January 1, 2024 loses its exemption during 2024, it must file its initial BOIR by the later of January 1, 2025, or 30 days from the date the reporting company lost its exemption.

Reporting Company Exceptions

In FAQs L7 and L9, FinCEN clarified the large operating company exception. As a reminder, the large company exception under Reg. §1010.380(c)(2)(xxi) exempts an entity from BOI reporting if it has more than 20 full-time employees in the United States, filed a Federal income tax or information return in the United States in the previous year demonstrating more than $5 million in gross receipts or sales, and has an operating presence at a physical office in the United States.

If an entity’s income fluctuates with respect to the $5 million threshold:

If the company files a BOI report and then becomes exempt as a large operating company, the company should file a “newly exempt entity” BOI report with FinCEN noting that the company is now exempt. If at a later date the company no longer meets the criteria for the large operating company exemption or any other exemption, the reporting company should file an updated BOI report with FinCEN. Updated reports should be submitted to FinCEN within 30 calendar days of the occurrence of the change.

There are some complications in how the $5 million threshold is applied to qualify for the exemption:

The Corporate Transparency Act (CTA) specifies that a company may qualify for the large operating company exemption based on a Federal income tax or information return filed “in” the previous year, while FinCEN’s regulations refer to tax or information returns filed “for” the previous year. To the extent a tax or information return for the previous year was not filed in the previous year (e.g., because a company has not filed its return for the previous year at the time beneficial ownership information is required to be reported, or because the return filed in the previous year was for a prior year), a company should use the return filed in the previous year for purposes of determining its qualification for the exemption. If a company relying on this exemption subsequently files a tax return demonstrating less than $5 million in gross sales or receipts, and it no longer qualifies for the large operating company exemption or any other exemption, it has 30 days from the date of the tax return to file an initial BOI report.

Let’s do an example: an S corporation formed before January 1, 2024 must determine if it is exempt from filing its initial BOIR in 2024. Assume that the S corporation return filed in 2023, for tax year 2022, demonstrated $5.2 million in gross receipts. Therefore, the S corporation is exempt from filing the BOIR in 2024, provided it meets all other exception requirements.

Assume the 2023 S corporation return, filed in 2024, demonstrates $5.3 million in gross receipts; the S corporation continues to be exempt, provided it meets the other requirements. Fast forward to 2025: the S corporation files its 2024 return on March 15, 2025, demonstrating $4.8 million in gross receipts. The S corporation no longer qualifies for the large operating company exception, so it must file its initial BOIR by April 15, 2025 (30 days from filing the return demonstrating it no longer qualifies).

Unauthorized Practice of Law

Some practitioners worried that assistance with the BOIR constituted the unauthorized practice of law; I believed these fears were overblown.

In July 2024, New Jersey became the first state to opine on the issue in a letter to the New Jersey Society of Certified Public Accountants. Long story short, CPAs and EAs can prepare and file the BOIR provided the professional notifies the client that it may be advisable to consult with an attorney and realizes that certain complex filings should only be handled by an attorney. This, of course, is based on New Jersey law, and it is only applicable to services performed in New Jersey.

The vast majority of small business clients have straightforward BOIRs that do not need an attorney; they can be prepared and filed by themselves or their tax professional with no concerns. A key role for the tax professional partnering with small business clients is to identify issues outside of the tax professional’s scope of services provided and refer clients as needed to specialists for these issues. This is no different.

The Tax Professional Role in BOI Reporting

For the last two years, I have consistently argued that every tax professional, as the primary advisor to their small business clients, should help their clients comply with BOI filing obligations. Assistance does not equal BOIR preparation; no firm is obligated to provide a service it does not want to provide.

There are four paths to helping our small business taxpayers with BOI compliance, and every tax practice should select one of these four options:

1. Provide education about the requirement. This is the minimum tax professionals should do; education should start in January 2024 and continue during the one-year compliance period.

2. Provide education and track client self-compliance. For large tax practices, this could require tracking thousands of entities.

3. Outsource preparation to a third-party firm. Many service providers will assist with BOI compliance; tax professionals can establish a referral relationship with one or more firms.

4. Prepare the required forms. A tax professional must consider the legal, financial, and operational consequences before offering this service.

If a tax professional is providing BOIR preparation services, the engagement scope must be clearly defined. If updated and corrected BOIRs are part of that scope, the tax professional must have a year-round process for providing this service.

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