FinCEN BOI Reporting
FinCEN BOI ReportingFinCEN has recently created new beneficial ownership information (BOI) reporting obligations that apply to all domestic reporting companies (including corporations, LLC, limited partnerships and any entity formed by filing a document with a secretary of state in the U.S.) The company must report the entity's (1) legal name, (2) any trade names or dba names, (3) principal place of business, (4) state of formation and (5) unique taxpayer ID number. For each beneficial owner, the company must disclose (1) full legal name, (2) date of birth, (3) address, (4) identifying number from the individual's ID (driver's license or passport) and (5) a copy of the ID. Penalties for willful violation of the BOI rules equal $591 a day (up to a maximum of $10,000). Criminal penalties may include up to two years in prison.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether FinCEN’s new BOI reporting regime will have a positive impact.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Bloink
Byrnes
Their Reasons:
Bloink: Without robust reporting requirements, taxpayers are able to manipulate the federal tax system to hide income and avoid taxes. Unfortunately, some taxpayers choose to form shell companies to hide activities and money. When a shell company owns another shell company that owns another shell company, it can be nearly impossible to identify the human being behind the structure. This robust BOI reporting regime will give FinCEN the information they need.
Byrnes: The wide-reaching BOI reporting requirements simply aren't going to be effective. We're talking about millions of annual filings. When the CTA was enacted, it was estimated that about 32.6 million companies would, for the first time ever, become subject to federal reporting requirements. Even if this regime does give FinCEN the information they need to prevent tax evasion and money laundering, it seems unrealistic to expect that FinCEN has the personnel resources to actually do anything meaningful with the information it receives via the BOI reporting system.
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Bloink: We've already proven that we cannot pick and choose which entities will be subject to regulatory requirements. Yes, the vast majority of Americans who form small businesses have no bad intentions about using those entities for criminal purposes. Still, it's impossible to catch those who are trying to evade taxation without having information about the beneficial ownership of these entities—exactly what this reporting regime is targeted to achieve.
Byrnes: It's very difficult to imagine that we're going to have a glitch-free system where private information is never leaked or accessed by bad actors. Recognizing how critical it is to do everything we can to protect national security, this seems like a huge overreach given the amount of information that is going to be collected without any indication that the reporting companies have engaged in any type of wrongdoing.
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Bloink: Collecting the actual information reporting is only step one. Now, when FinCEN has suspicions about illegal activities being conducted through shell entities, they will have a robust database to search. We’re talking about a high-level government agency that already has access to significant private data. All this system does is match that human-level data with the entities associated with them. I would say the minimal reporting requirements are a small sacrifice when we consider the benefits—both in terms of preventing domestic criminal activity and improperly funneling money abroad.
Byrnes: Many of the companies that are now subject to this reporting rule are extremely small businesses who have never heard of FinCEN before. Even leaving aside questions about the system itself, it’s going to be incredibly difficult to administer and enforce this new BOI regime. I can’t imagine that this type of non-targeted reporting is going to be particularly useful when it comes to catching bad actors.