The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has increased its efforts to update businesses on the requirements for beneficial ownership information (BOI), but it still faces complaints from some quarters that those efforts are not sufficient, the Journal of Accountancy reported.
Aiming to deter money laundering, corruption and other forms of criminal activity by shell companies, the 2021 Corporate Transparency Act (CTA) requires companies to disclose who actually owns or controls them. Existing companies will have until Jan. 1, 2025 to file their BOI reports, while companies created or registered after Jan. 1, 2024, are required to file within 90 calendar days of their creation or registration. FinCEN started accepting beneficial ownership information (BOI) reports at a new online registry that opened on Jan. 1, 2024.
The penalties for willful violations of the requirement are punishable by a fine of $591 per day, up to $10,000, and two years in prison with similarly serious penalties for unauthorized disclosure.
As of June, FinCEN said that it has reached over 90,000 stakeholders directly through more than 135 beneficial ownership conferences, webinars, roundtables and informational sessions, the Journal reported. These engagements have been in partnership with secretaries of state, government agencies, industry groups, congressional offices, service providers, chambers of commerce and others.
"There is a massive education and outreach effort," Treasury Secretary Janet Yellen told the House Financial Services Committee at a hearing in July.
Members of the House of Representatives, from both parties, expressed doubt during that committee hearing. Over halfway through 2024, just 2.7 million of the 32.6 million businesses estimated to be required to file BOI reports this year have done so, Yellen told the committee.
"That is an abysmal number, particularly when we have less than six months left in your timeline to help be able to execute," Rep. Zach Nunn (R-Iowa) told Yellen.
Rep. Nydia Velázquez (D-N.Y.) said that many businesses are unaware of the BOI reporting rule, and she expressed specific concern about "rural and underserved businesses in which English is not the primary language." She later sponsored a BOI meeting with FinCEN representatives and her constituents.
Despite the concerns, Yellen said FinCEN will not extend the BOI reporting deadline. "We've seen a good response so far and don't think it's going to be necessary to extend the time frame," she said.
FinCEN also has published a small entity compliance guide and FAQs.
It's good that FinCEN is reaching out to community groups, said Annette Nellen, an accounting and finance professor at San José State University in California, and a past chair of the AICPA Tax Executive Committee. But she questioned how FinCEN can find everyone who needs to file BOI reports.
"I think there's still going to be a good number of people that just don't hear [about BOI,] … say, somebody set up their own LLC, they drop their rental property into it, they prepare their own tax return," she told the Journal in an interview. "I have no idea how that person's going to know that that LLC needs to register. How do they reach them? It would have to be something very direct."
The AICPA met with FinCEN on June 27 in Washington to discuss BOI. Other stakeholders joined the meeting "to express the pain points that small businesses are facing right now because ultimately, BOI isn't just a CPA problem, it's a broader issue that really is impacting and hurting small businesses," said Melanie Lauridsen, vice president–Tax Policy & Advocacy for the AICPA, in an interview with the Journal.
Pain points for CPAs include the need for legislation to protect CPAs who offer BOI services from charges of the unauthorized practice of law, she said. FinCEN was receptive to the AICPA's issues, Lauridsen said during a recent Town Hall. The AICPA has also created its AICPA & CIMA BOI reporting resource center.
In addition to the AICPA, secretaries of state offices advise businesses about BOI reporting rules. The National Association of Secretaries of State has a page on company ownership, which includes a reference to the reporting of beneficial ownership information to FinCEN.
Bad actors such as human traffickers and ransomware attackers rely on anonymous shell companies to commit their crimes, FinCEN Director Andrea Gacki explained at a June meeting in Tucson, Ariz., organized by Sen. Kyrsten Sinema (I-Ariz.).
"Corporate anonymity gives criminals a head start over law enforcement," said Gacki in prepared remarks. "Investigators must devote substantial time and resources to show who the real person is that controls or owns an entity. Criminals know about this advantage and use it to further enrich themselves and exploit the U.S. financial system."
Regardless of the outreach, some people do not understand that they must file BOI reports, said Nellen, who regularly does presentations that include BOI.
"In making presentations and explaining what a reporting company is, I would sometimes get a question—'A [single member LLC] doesn't have to register, right?'" she wrote in an email to the Journal. "Of course, an LLC is a reporting company because the LLC had to file a document with the secretary of state to come into existence (and must file unless it meets one of the exceptions for reporting companies)."
The question likely comes up "because when you know the purpose of the CTA, it can make one wonder why [an] SMLLC, perhaps set up to own a rental property, needs to provide BOI to FinCEN. But of course, the vast majority of reporting companies have no money laundering or other bad activities taking place—but must still register if they meet the requirements."