Do you REally have to file a Beneficial Owner Information (BOI) Report with Financial Crimes Enforcement Network?

Having an additional layer of paperwork to contend with is big nuisance, so many companies are hoping that they are exempt from this perceived waste of time. Anticipating this, Congress thoughtfully added heavy fines and threat of imprisonment for individuals connected to companies that did not comply with the law, and gave few exceptions.

If you are reading this, then most likely yes, you have to file and update BOI Reports. To be exempt you have to qualify for one of the 23 exemptions. We have the exemptions grouped below to make it easier to read. Generally, these exemptions apply for companies that are already filing regular reports with the federal government. If you are not filing quarterly reports with the SEC, CFTC, FINRA, the Federal Reserve or other government regulatory bodies.

Shortcut: if you set up your company without a lawyer, then you are probably not exempt. Even if you set up your company with the help of a lawyer but the filing was relatively fast and there were no complications getting approvals, then also you are probably not exempt.

The 23 Exemptions

Companies which have filed with the SEC, CFTC or FINRA
– SEC-qualified securities issuer
– Broker or Dealer in Securities
– Securities Exchange or clearing agency
– Commodity Exchange
– Other Exchange Act registered entity
– Pooled investment vehicle
– Venture capital fund adviser

Governmental Authority

Regulated Financial Companies
– Bank
– Credit Union
– Bank Holding Company
– Financial market utility
– Money Services Business/Money Transmitting Service
– Insurance Company
– State-licensed insurance producer

Public Utility providing telecom services, electrical power, natural gas or water/sewer services within the US
Public Accounting Firm registered in accordance with Sarbanes-Oxley Act Sec 102
Tax-exempt Entity which has been approved under Sec 501(c) of the IRC
Entity exclusively assisting a tax-exempt entity as a US-owned/controlled entity majority-funded from US persons
Subsidiary of certain exempt entities listed above

Large operating company
Inactive Entity

Chances are, if you are reading this, you do not qualify for any of the exemptions. The exemptions are only for companies that are regulated and provide (non-tax) filings to federal governmental agencies so that ownership is clear. The last two exemptions need more explanation.

Large Operating Company Exemption

This exemption may be a bit of a trap for many companies. For a company to qualify for this exemption,  ALL 6 of the following criteria must apply:
[ ] The entity employs 21 or more full-time employees. In general, “full-time employee” means, with respect to a calendar month, an employee who is employed an average of at least 30 hours of service per week with an employer. Part-time or temp workers are not considered by FinCEN to be employees at this time.
[ ] These 21 or more employees are employed in the US, defined as States of the United States, the District of Columbia, the Indian lands (as that term is defined in the Indian Gaming Regulatory Act), and the Territories and Insular Possessions of the United States.
[ ] The entity has an operating presence at a physical office within the United States. “Operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity. Shared offices, shared workspaces and virtual offices/maildrops do not count.
[ ] The entity filed a Federal income tax or information return in the US for the previous year demonstrating more than $5,000,000 in gross receipts or sales. If the entity is part of an affiliated group of corporations within the meaning of 26 U.S.C. 1504, refer to the consolidated return for such group.
[ ] The entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form.
[ ] When gross receipts or sales from sources outside the United States, as determined under Federal income tax principle, are excluded from the entity’s amount of gross receipts or sales, the amount remains greater than $5,000,000.

All six of these criteria must apply, so a new entity which has not yet filed its federal tax return cannot use this exemption no matter how much revenue it has or is expected to earn in its first year. It also will not apply to any entity which has no operations in the US, or which does not maintain an exclusive, physical office within the US.

Inactive Entity Exemption

This exemption is not as straight-forward as you might think, and is harder to obtain than it looks like at first glance. In order to qualify, an entity must satisfy ALL 6 of these criteria:

[ ] The entity was in existence on or before January 1, 2020. Any entity formed after that date cannot claim this exemption.
[ ] The entity is not engaged in active business.
[ ] The entity is not owned by a foreign person, whether directly or indirectly, wholly or partially. “Foreign person” means a person who is not a United States person. A United States person is defined in section 7701(a)(30) of the Internal Revenue Code of 1986 as a citizen or resident of the United States, domestic partnership and corporation, and other estates and trusts.
[ ] The entity has not experienced any change in ownership in the preceding twelve-month period.
[ ] The entity has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period.
[ ] The entity does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability or other similar entity.

As you can see, one has to carefully read and make sure your entity is able to meet all these strict criteria. Failure to do so makes you eligible to help the Federal government balance its budget. FinCEN is legally entitled to hit you with fines and imprisonment for each mistake you make.