Introduction
The Corporate Transparency Act (CTA), enacted in 2021, introduced significant changes to business reporting requirements in the United States. One of its main provisions is the requirement for certain businesses, including contracting firms, to submit Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). What does BOI reporting for contractors mean? This regulation is designed to enhance transparency and combat illicit activities such as money laundering, tax fraud, and financing of terrorism.
However, recent legal challenges have affected the implementation of BOI reporting, leading to uncertainties for many businesses, including contractors. This blog will discuss the current status of BOI reporting for contractors, legal updates, compliance requirements, and how construction businesses should prepare for potential changes.
What is BOI Reporting?
BOI reporting refers to the requirement for businesses to disclose information about their “beneficial owners”—individuals who have significant control over or own at least 25% of the entity. This initiative was introduced to prevent the misuse of anonymous shell companies that can be exploited for financial crimes.
Who is a Beneficial Owner?
A beneficial owner is any individual who:
- Owns or controls at least 25% of a company
- Exercises substantial control over the business
- Receives substantial economic benefits from the entity
For contractors operating as LLCs, corporations, or partnerships, this means that the owners, significant shareholders, or key decision-makers may need to be reported.
Recent Legal Developments Affecting BOI Reporting
As of January 2025, the implementation of BOI reporting requirements has faced legal challenges, temporarily halting mandatory filings.
- A federal court order has paused the requirement for businesses to submit BOI reports, meaning contractors and other affected businesses are not currently required to report their ownership information to FinCEN. Additionally:
- A Supreme Court ruling lifted an injunction related to the CTA, but another court order remains in place, maintaining the hold on BOI reporting.
- FinCEN has clarified that while this legal injunction is active, businesses do not have to file BOI reports and will not face penalties for non-compliance during this period.
- Businesses can voluntarily submit BOI reports, but this is not required at this time.
For contractors, this means no immediate action is required, but it’s important to stay informed about future developments that could reinstate the requirement.
How Does BOI Reporting Impact Contractors?
Contractors—especially those operating as LLCs or corporations—are likely to be classified as reporting companies under the Corporate Transparency Act. This means that once the legal challenges are resolved, these businesses will be required to file BOI reports.
Common Contractor Business Structures Affected
- Single-member and multi-member LLCs
- Corporations (S-Corps and C-Corps)
- Partnerships registered with the state
- Other entities created by filing with a state agency
Exemptions That May Apply
Certain businesses are exempt from BOI reporting, including:
- Sole proprietorships that do not require state registration
- Larger companies (20+ employees, $5M+ in gross receipts, and a physical presence in the U.S.)
- Certain regulated entities such as banks, credit unions, and insurance companies
Since most small and mid-sized contracting businesses do not qualify for these exemptions, it’s crucial to understand the filing requirements and be prepared when BOI reporting resumes.
What Contractors Should Do Now
Although BOI reporting is currently on hold, it’s a matter of time before the legal disputes are resolved and the requirement is reinstated. Contractors should take proactive steps to prepare.
- Determine If You Are a Reporting Company
Contractors should first determine whether they fall under the CTA’s definition of a reporting company. If your business is an LLC, corporation, or similar entity, you will likely need to comply.
- Identify Beneficial Owners
Once your business is classified as a reporting company, you should identify and document the individuals who meet the criteria for beneficial ownership:
- Owners with 25% or more equity interest
- Individuals who exercise substantial control over business decisions
- Anyone receiving significant financial benefits from the company
- Gather Required Information
Each beneficial owner’s details must be reported to FinCEN, including:
- Full legal name
- Date of birth
- Current residential address
- Government-issued ID (e.g., passport or driver’s license)
- Consider Voluntary Compliance
Although not required, some contractors may choose to file their BOI reports voluntarily to get ahead of future compliance requirements. This can help streamline the process once reporting becomes mandatory again.
- Stay Updated on Legal Changes
Since BOI reporting is subject to ongoing legal proceedings, contractors should:
- Follow updates from FinCEN and industry associations
- Consult with a bookkeeping or tax professional to ensure compliance
- Prepare to file promptly when the reporting requirement is reinstated
What Happens If Contractors Fail to Comply?
Once BOI reporting requirements are reinstated, failing to comply can lead to serious penalties. Contractors should be aware of the potential consequences:
- Civil and Criminal Penalties
- Fines up to $500 per day for non-compliance
- Criminal penalties including fines up to $10,000 and possible imprisonment for willful violations
- Business Risks
- Non-compliance could result in difficulties securing loans or contracts
- Contractors may face legal action from regulatory agencies
- Financial penalties can strain business operations and cash flow
Conclusion
Although BOI reporting is currently on hold due to legal proceedings, contractors should not ignore the potential compliance requirements. Once the legal challenges are resolved, businesses will likely be required to file BOI reports to avoid fines and penalties.
To stay ahead, contractors should:
- Determine whether their business qualifies as a reporting company
- Identify beneficial owners and gather necessary information
- Monitor legal developments and prepare for future compliance
- Consult with bookkeeping and tax professionals to ensure readiness
By taking a proactive approach, contractors can avoid last-minute scrambling and ensure their business remains compliant when BOI reporting is reinstated.
For further updates on BOI reporting for contractors, stay connected with industry news and consult with a qualified financial professional such as Aladdin Bookkeeping: Bookkeeping for Contractors to keep your business compliant with evolving regulations. Reach out for a free bookkeeping consultation!
