The Financial Crimes Enforcement Network (FinCEN) has amped up its outreach efforts to update businesses on the requirements for beneficial ownership information (BOI), which requires reports from over 32 million businesses this year.

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. 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 in July.

But is it enough? Several members of the House, both Democrat and Republican, 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 House 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, a Republican from Iowa, told Yellen.

Rep. Nydia Velázquez, a Democrat from New York, said 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.”

Velázquez later sponsored a BOI meeting with FinCEN representatives and her constituents.

Background

Under the Corporate Transparency Act (CTA), P.L. 116-283, which Congress passed in 2021 as an anti-money-laundering initiative, reporting companies must disclose the identity and information about beneficial owners of the entities. For new entities incorporated after Jan. 1, 2024, reporting companies must also disclose the identity of “applicants” — defined as any individual who files an application to form a corporation, limited liability company, or other similar entity.

Companies created or registered before Jan. 1, 2024, must submit BOI reports by Jan. 1, 2025, while those founded or registered on or after Jan. 1, 2024, must submit the BOI report within 90 calendar days of registration. Companies founded or registered on Jan. 1, 2025, must submit the BOI report within 30 calendar days of registration. Companies must file updated or corrected BOI reports within 30 days of any modifications or updates to their company information or beneficial owners.

Despite the concerns, Yellen said FinCEN, which reports to Treasury, 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.

One reason for the concern: the penalties for willful violations, which 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.

FinCEN also has published a small entity compliance guide and FAQs.

Effects of outreach

It’s good that FinCEN is reaching out to community groups, said Annette Nellen, Esq., CPA, CGMA, professor in the Department of Accounting and Finance at San José State University in San José, Calif.,  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 JofA 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.”

AICPA advocacy

The AICPA met with FinCEN on June 27 in Washington, D.C., 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.

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 advocated for a one-year delay in the effective date of BOI reporting “due to the lack of timely guidance” from FinCEN and a lack of awareness of the new rule among many small businesses.

Also, the AICPA submitted comments to FinCEN in February 2022, urging it to consider the burden and cost imposed by BOI reporting requirements affecting small businesses, including small CPA firms. It also created its AICPA & CIMA BOI reporting resource center.

Outreach by secretaries of state

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.

Outreach by individual secretaries of state varies from South Carolina, which has a banner advisory in white lettering on a red background at the top of its website, to Alabama, which appears to have no information available.

FinCEN director’s remarks

Sen. Kyrsten Sinema, an independent from Arizona, organized a BOI meeting in Tucson in June at which FinCEN Director Andrea Gacki explained the reasoning behind BOI reporting rules: Because bad actors such as human traffickers and ransomware attackers rely on anonymous shell companies to commit their crimes.

“Corporate anonymity gives criminals a head start over law enforcement,” Gacki said 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.”

The CTA concentrates on small businesses because big organizations already disclose their organizational information to federal agencies through other avenues, she said. Not filing a BOI report or filing a false one, Gacki said, could trigger an investigation. If the bad actors file an accurate report, they lose the anonymity that protects them, she said.

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 (SMLLC)] doesn’t have to register, right?'” she said in an email. “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.”