What to Know About the Feds' New Ownership Reporting Rules

Kenneth Dettman. Credit: FileForms

What You Need to Know

The Corporate Transparency Act now requires some full and partial business owners to disclose their holdings.
Drafters hope the law will keep foreign adversaries and organized crime rings from using anonymous assets to break the law.
The reporting requirements include many exemptions, although some discourage smart parties from using them.

Your firm and your business owner clients’ firms might be able to avoid giving the U.S. government owner lists, but Kenneth Dettman thinks that you and your clients should send in any reports the government will take.

The Financial Crimes Enforcement Network is now trying to fight hostile governments, human traffickers and international drug cartels by requiring many U.S. and non-U.S. companies operating in the United States to file “beneficial ownership information” reports.

Individuals and entities that file their BOI reports late could have to pay up to $591 in late fees per day, according to a Kahn, Litwin, Renza analysis. Individuals and entities that skip filing the reports altogether could face $10,000 fines per entity and up to two years in prison.

What it means: Dettman, an accountant who owns FileForms, a BOI reporting support services firm, said in an email interview that FinCEN crime-fighting goals are important enough and the penalties of failing to file reports are serious enough that all business entities should try to file BOI reports and not look for ways to use exemptions to avoid the paperwork.

“There are so many complex company structures built up, so filing a BOI report on all reportable entities will be doing your business and the government a favor,” Dettman said.

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The history: Many U.S. states let people use “shell companies” to buy businesses and other types of property without revealing their identity to the public or even, in some cases, to state or federal regulators.

Law enforcement investigators around the world have complained for years about the effects of asset ownership secrecy on efforts to locate and punish bad actors.

Congress tried to close ownership information gaps by putting new beneficial ownership information reporting requirements in the Corporate Transparency Act, a section in the William M. (Mac) Thornberry National Defense Authorization Act for fiscal 2021.

The Corporate Transparency Act sets beneficial ownership information reporting requirements for both U.S. and non-U.S. companies.

The official scope: Many law firms that have analyzed the Corporate Transparency Act have emphasized how numerous and broad the exemptions in the BOI requirements are.

The law applies to entities created through state registration processes that are subject to little other oversight.

Congress tried to ease reporting burdens and win interest group support by excluding many types of highly regulated companies that are already subject to regulator-driven ownership verification efforts, such as insurance companies and insurance agencies.

The true scope: A team from Sheppard Mullin has prepared a more detailed analysis that emphasizes that a trust that holds an interest in an affected company may have to file BOI reports.

FinCEN is using its own rules for classifying people and companies as beneficial owners, not the kinds of ownership determination rules that financial advisors and estate planners typically see.

Since beneficiaries, settlors, executors and trustees can each be considered beneficial owners, the ownership interests held in an estate or trust could be considered simultaneously as owned or controlled by multiple persons,” the Sheppard Mullin lawyers note.

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In practice, that means that, if John Doe’s trust holds a significant stake in Doe Enterprises, a company subject to the new reporting rules, Doe Enterprises might have to file a BOI report with a beneficial owner list that includes John Doe himself, the trust’s trustees, any trust beneficiaries who have the right to withdraw most or all of the assets from the trust, and John Doe’s estate executor.

The reporting: Reporting companies must send FinCEN the full legal names, street addresses and dates of birth of all beneficial owners.