Businesses, including many online sellers, must register with the US Treasury’s Financial Crimes Enforcement Network (FinCEN) soon or face significant fines due to the bipartisan Corporate Transparency Act (CTA) passed at the end of the last administration. (See update below.)
The law was created to help stop illicit actors from using shell companies and other “opaque legal structures to launder money, traffic humans and drugs, and commit serious tax fraud and other crimes.”
Due to some last-minute legal wranglings, the deadline for reporting beneficial ownership information (BOI) to FinCEN was pushed from the end of 2024 to January 13, 2025.
Companies required to report beneficial ownership information to FinCEN are called “reporting companies.”
Online Sellers NOT Required to Report BOI:
Many online sellers operate as sole proprietorships, which are generally not reporting companies. Unless a sole proprietorship was created in the US by filing a document with a secretary of state or similar office, it is not a reporting company under the CTA.
What about sole proprietors who registered with the IRS for an employer ID number? “Filing a document with a government agency to obtain (1) an IRS employer identification number, (2) a fictitious business name, or (3) a professional or occupational license does not create a new entity, and therefore does not make a sole proprietorship filing such a document a reporting company.”
In addition, there are some types of companies and trusts exempt from the reporting requirement, see more on who is required to report in Section C of the FinCEN FAQs.
Online Sellers Who ARE Required to Report BOI:
“Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.” (See the FinCEN website for information on foreign reporting companies’ obligations.)
The new law requires reporting companies to report “beneficial owners” of the business, which includes “any individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of the ownership interests of a reporting company.” This will make it harder for illicit actors to use shell companies to launder their money or hide assets, according to the FAQs.
What happens if a reporting company doesn’t file? FinCEN states: “A person who willfully violates beneficial ownership reporting requirements may be subject to civil penalties of up to $591 for each day that the violation continues, as well as criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include 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.”
It may sound intimidating, but sellers who set up an LLC or corporation should easily be able to complete the process online. And even better, unlike forming LLCs and filing annual reports with secretaries of state, there are no fees for reporting BOI. FinCEN published the following video on YouTube where an employee walks through the process:
On a final note, sellers should remain wary of unsolicited emails that could be phishing attempts. Don’t click on links in an email, go to the FinCEN website directly from your browser (fincen.gov) when you’re ready to file. The website describes techniques bad actors have already used to try and defraud business owners.
Update 12/27/2024: A day after publishing this article, FinCEN updated its website with a new development:
Alert [December 27, 2024]: Impact of Ongoing Litigation – Deadline Stay – Voluntary Submission Only
“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.“
FinCEN’s alert summarized the litigation and ended with the following information:
“On December 26, 2024, however, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s December 23, 2024 order granting a stay of the preliminary injunction. Accordingly, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.“
I am shocked – totally blindsided by this news report!! I NEVER heard of this subject before!! how can the government think they have publicized it anywhere even close to nearly enough?? And the fines are staggering for non-compliance? I am a sole proprietor LLC, a one-person small business in my home, I don’t even occupy a full room and no way could I ANYWHERE near support myself on “profits.” I went with an LLC for the insurance protections because I rent space in a local antique mall and have no control over shoppers handling my items.
*** Many are pissed ***
I found out about having to “report” from an article I found on CNBC. I found the article by accident about 2 weeks ago. The article stated that most business owners have no knowledge of this mandated reporting, while it’s up to the government to send out mailers to inform businesses. The article went on to say that many consumers are pretty much pissed that they have not been informed to then be financially threatened if they don’t file the report. Having said that, I know someone who recently started a new business, with an EIN, and was told by the federal government that they need to file the BOI.
Y’know, our accountant sent us this dire email warning us to comply or face huge fines. So, I did. I went through the whole process and, at the very end, there was a message that it had been challenged and we might not have to do this filing. AFTER I did. What a government crock! And, did my accountant know this? If he did, he certainly didn’t update me. I’m still pretty ticked off about the whole thing. Government is way too far into our business. Unless we are actively doing something wrong, they need to stop trying to find ways to access information that they really have no right to. I intend to use this administration to constantly oppose these BS government oversights.