Corporate Transparency Act reporting: What we know so far

In an effort to curb money laundering and creation of shell companies, the Corporate Transparency Act (“CTA”) was enacted by Congress in January 1, 2021 and requires that as of January 1, 2024, corporate entities have to report to the government personal information about the beneficial owners of the entity (Beneficial Ownership Information, or “BOI”).   This will affect LLCs, limited partnerships, and smaller corporations, even if the entity was just created for estate planning purposes.  Exempt entities will include – but are not limited to – large operating companies, public companies, tax-exempt entities, and security dealers.  (The rationale for exemption appears to be that they are already highly regulated.)

The rules require that any person who owns 25%+ or controls an entity (for example, the Manager of the business, even if that person is not an owner) has to report personal BOI information to FinCEN (the Department of the Treasury’s Financial Crimes Enforcement Network).

The kind of information to be reported is name, date of birth, physical address, identification number (e.g. driver’s license or passport) and a picture of the ID.  Some of this is similar to what is reported to the State of Maine on the Annual Report filing, but it digs deeper.  The person reporting all of this information on behalf of the entity, even if a non-owner or non-manager, will also have to report their personal information.

The BOI reporting requirement seems like an extension of similar information already reported to financial institutions (i.e. Know Your Customer (“KYC”) compliance).  However, this is new for entities, and it strips away a shield of privacy, which was often the original motivation for forming these small companies.  Many people are worried about keeping their private information secure, especially as reporting is done on a web-based system. 

The biggest challenge we foresee is that data must be kept current with FinCEN.  This differs from the Know Your Customer rules, which are implemented when a financial account opens and then, depending on the risk level assigned to that customer, have to be updated every 2-10 years.  With BOI, if any beneficial owner changes an address, it must be reported within 30 days.  If you renew your driver’s license, add a new owner, hire a new manager, or move to a new apartment, you must update that information.  The penalty is $500 per day up to a maximum of $10,000 and/or imprisonment up to 2 years.  It is not clear if the penalty be assessed proactively.

Entities that form after January 1, 2024 must report BOI data to FinCEN within 30 days; existing businesses have until December 31, 2024 calendar year to bring their records current. 

FinCEN is creating a special online reporting system known as the Beneficial Ownership Secure System (“BOSS”). Government access will be limited to people with certain high-level security clearances. At the time of this writing (September, 2023), this database has not been unveiled to the public. It is possible that the rollout date of January 1 will have to be postponed. However, information gathering may take time and we encourage business clients to begin to prepare.

There are many unknowns about the practical rollout of this program.  Will you be able to print a report from BOSS of what you filed? Will you have to re-fill in certain data every time?  Will any inputter be able to see the private information for all beneficial owners? Will each person be able to login to update his/her own data, or will the login be limited to one person representing the entity?  Will answering “unknown” to a field trigger consequences?

Professionals who help with corporate entities (e.g. attorneys and accountants) do not have certainty in this area but are working to find a system to assist their clients. There are still a lot of questions on how BOI reporting will roll out.  At our office, we are continuing to think through logistics and potential problems that our clients might face.  Current corporate clients (i.e. those who use us as Clerk or Registered Agent) will receive formal notification from us about next steps for meeting this requirement. 

Rev. 09/23

The information presented on this website is general in nature and not intended to be legal advice. No attorney-client relationship will exist with Jones, Kuriloff & Sargent, LLC unless we agree in writing after a personal consultation. Please contact us for a consultation on your particular situation.