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Sole Proprietors – Is There A BOI Reporting Requirement?

There has been a lot of press lately about beneficial ownership information (BOI) reporting required by the U.S. Treasury’s FinCEN unit.  For many businesses, reporting is now required and FinCEN is accepting reports online as of January 1, 2024.

While the requirement to file seems reasonably clear for entities organized as a corporation or a limited liability corporation (LLC), the requirements are less clear for small business sole proprietorships reported on Schedule C to a taxpayer’s individual tax return.

Based on the most recent data we can find from the Department of Treasury, in 2021 there were over 29 million tax returns filed reflecting a non-farm small business report. Do these businesses all need to file?

According to FinCEN guidance, if a small business is organized as an LLC or corporation, it mostly likely is required to file a BOI report unless it qualifies for an exemption.  We discussed a partial list of exemptions in our blog post last November that included publicly traded companies, public accounting firms and banks, among other organizations.  You can find the full list of exemptions here.

If a small business is not organized as an LLC or corporation, then a determination needs to be made as to whether the business meets FinCEN’s definition of a “reporting company”.  The reporting company question, once it is established that an LLC or corporation does not exist, turns on whether or not the business was “created by the filing of a document with a secretary of state or any similar office of a state or Indian tribe”.  For companies operating under U.S. Law, if that answer is “no”, then the business is not considered to be a reporting company and therefore does not have to file a BOI report.  Note that firms created or formed under the laws of a foreign country may still have a filing requirement.

Does a DBA (“doing business as”) filing for a business that is not an LLC or corporation create a reporting company requirement?  We do not believe so…registering a DBA is generally intended to alert local and/or state authorities that one intends to operate their business under an assumed or fictitious name, but that is different from registering a business as a legal entity such as an LLC or corporation.

The new rules around BOI reporting can be complex and there are significant penalties for failure to comply by businesses that are found to have a reporting requirement. The good news is that there is time to navigate this requirement if it applies to you – you have until January 1, 2025, to file. The FinCEN website provides more complete guidance, and you may wish to seek legal advice if you have additional questions in making the determination for your business.

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