The Comprehensive New Corporate Disclosure Legislation - Unfamiliar to Many

Embedded within an obscure legislative enactment of 2020 lies a pivotal piece of legislation, the Corporate Transparency Act (“CTA”), significantly impacting both U.S. and foreign entities. Mandated by the Anti-Money Laundering Act of 2020, the CTA imposes obligations on virtually all corporations, limited liability companies (LLCs), and partnerships operating within the United States. Commencing on January 1, 2024, these entities are obligated to disclose the identity of their individual owner(s) to the Financial Crimes Enforcement Network (FinCEN), an entity distinct from the Internal Revenue Service (IRS).

The CTA’s introduction was discreet, occurring within the broader context of enhancing national security, intelligence, and law enforcement efforts against money laundering, terrorist financing, and illicit activities. Confidential information required under the CTA is to be conveyed to FinCEN through a forthcoming “Beneficial Ownership Information Report” (BOI Report).

Given the substantial estimated volume of new filing obligations—exceeding 30 million companies—and the severe civil and criminal penalties for non-compliance (up to $10,000 in fines and a 2-year imprisonment term), the impending implementation in less than a year, coupled with limited public awareness, is perplexing and disconcerting. As awareness gradually disseminates throughout 2023, diverse business stakeholders, from small enterprises to multinational corporations, will likely experience significant anxiety.

Understanding FinCEN:

FinCEN, housed within the U.S. Department of the Treasury, is tasked with safeguarding the financial system from illicit use, combating money laundering, and promoting national security through financial intelligence collection and strategic use of financial authorities, with an emphasis on anti-terrorism.

While many Americans may be unfamiliar with FinCEN, some may recognize the Foreign Bank Account Report (FBAR) requirement, a well-known filing obligation administered by FinCEN for individuals or companies holding $10,000 or more in offshore accounts.

Comparisons with FBAR:

The BOI Reporting regime’s potential parallels with the FBAR regime remain uncertain. However, the transformative impact of the CTA is undebatable, given the diverse scope of entities affected. The imminent nature of the CTA requirements necessitates a proactive approach, anticipating potential modifications to the BOI Reporting framework.

Current Disclosure Landscape:

Pre-CTA, ownership disclosure requirements for U.S. companies to the federal government primarily occurred through the IRS, typically within or attached to income tax returns. Various states have distinct disclosure regulations, with some, such as Delaware and Wyoming, not mandating ownership disclosures.

Contrasting with traditional disclosures, the BOI Report diverges significantly:
1. It is not a tax return and lacks income-related information.
2. It is not submitted to the IRS or state divisions of corporations or commerce.
3. Applicability is not universal, excluding companies with less than $5 million in revenues and fewer than 25 employees.
4. Technical analysis is necessary for determining filing requirements and identifying “beneficial owners.”

Failure to file carries penalties up to $500 per day, capped at $10,000, and potential imprisonment for up to 2 years. Due to its complexity, reliance on self-service filing services or exclusive legal support may be impractical.

CPA Involvement: 

CPAs, predominantly focused on tax compliance, face challenges staying abreast of the dynamic Internal Revenue Code. The CTA, distinct from tax or accounting principles, is unlikely to be embraced by CPAs for compliance efforts. Additionally, certain U.S. LLCs may not file tax returns with the IRS, further diminishing the likelihood of CPA involvement.

Seeking Assistance: 

Determining BOI Reporting obligations is a legal question. While corporate attorneys could provide assistance, the majority of companies may not require legal intervention. BOI FI, a platform devised by experienced professionals, offers a technology-driven solution coupled with live professional support for accurate BOI Report filings. Utilizing a step-by-step “BOI Filing FinTech,” BOI FI provides a comprehensive and adaptive approach to navigate BOI Reporting requirements.