By Patrick O’Brien, JD, General Counsel, American Med Spa Association (AmSpa)

In 2024, most small business owners, including medical spas, will have a new annual federal reporting requirement with which to comply. While you attempt to contain your excitement, you may be wondering “what,” “why” and “why me?” These are all great questions; here’s an attempt to answer them and provide what information is available to help you remain compliant.

Why do I need to make a report?

To begin, in 2021, the Corporate Transparency Act (CTA) was signed into law; it includes multiple provisions aimed at combating money laundering, tax fraud and other financial crimes. One of these provisions requires businesses to report information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Department of the Treasury. This requirement for reporting beneficial ownership information (BOI) goes into effect on January 1, 2024. FinCEN provides a BOI webpage with FAQs and a small-entity compliance guide on this upcoming reporting requirement where you can find more information. (Click here to download a brochure introduction to BOI from FinCEN.)

Who must report?

The rules for what kinds of businesses are required to report and which are exempt are fairly complex. The FinCEN resources provide some helpful flow charts to determine where your business falls in this requirement. While you certainly will want to work through the charts for your situation, in general, if yours is a U.S.-based business that was formed by filing documents with a state—such as an LLC, PC or corporation—you may be required to report unless you meet one of the exemptions. There are 23 categories of exemptions, many of which won’t apply to the typical medical spa or aesthetic practice. The exemptions appear to generally exclude banks, financial institutions, government entities, insurance companies, non-profits and similar “highly regulated industries,” but not medical practices or health care entities.

One category of exemption that may apply to businesses in all industries is for what is called a “large operating company.” There are six criteria a company needs to meet to qualify as a large operating company, but, in general, a large operating company is a business that employs more than 20 people and has more than $5 million in gross sales. The vast majority of medical spas will fall under these thresholds, so may need to make the BOI report, but you will want to review the FinCEN resources to determine your own situation.

What is getting reported?

So, you have come to terms with your lot in life: Your business meets the requirement to report and isn’t exempt. The information you will need to report is fairly basic: For the company itself, you will need names and trade names, addresses, state of formation and tax ID number. For each “beneficial owner,” you will need to report their name, date of birth and address, and provide a copy of a state-issued ID, such as a passport or driver’s license. Beneficial owners are persons or entities that own or control 25% of the company or have substantial control over the company.

There are more rules and details about what qualifies as substantial and how to calculate ownership, so you will want to carefully review the guidance to see who qualifies as a beneficial owner. There are, of course, extra details and special rules on extra reporting, types of information, etc., so you will want to review the compliance guide to make sure you have all the information required.

Where do I make the report?

The report will be made through FinCEN’s BOI webpage. The forms and login info are not available yet, but additional guidance will be posted there.

When do I have to do this?

Not yet. You will have to contain your excitement until January 1, 2024—that is the earliest that these reports will be accepted. The deadline to make the report will depend on when your business was formed. If you are operating now (in 2023), you must file this initial report before January 1, 2025. But, if your business is formed in 2024, you must file the report within 30 days.

This new reporting requirement is not yet fully implemented, so the rules may change or evolve. It is important to work with your business and legal advisors to determine what your business is required to do. According to FinCEN, failure to file a report or providing an inaccurate or incomplete report may result in civil or criminal penalties. Civil fines can be up to $500 per day you are in violation; criminal penalties can include imprisonment up to two years and/or a fine up to $10,000. So, it is important that you work with your advisors to determine your compliance needs.

Learn more about requirements that apply to medical aesthetics practices in your state when you visit your Medical Spa Laws.