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Under the Corporate Transparency Act (CTA) regulations, reporting companies are required to file Beneficial Ownership Information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN). Currently, the CTA mandates that entities file updated BOI reports within 30 days of any change in information about the entity or its beneficial owners.
While this approach is designed to ensure up-to-date records for law enforcement and regulatory purposes, it raises questions about practicality and efficiency. Would transitioning to an annual BOI reports make more sense?
The Burden of 30-Day Updates
The 30-day update requirement might be challenging for businesses to meet, especially those with multiple beneficial owners or frequent organizational changes. Consider the following scenarios:
- Address Changes: If a beneficial owner moves to a new residence, the entity must file an update within 30 days.
- Leadership Changes: A company hiring a new Chief Financial Officer (CFO) would trigger another required update.
- Other Changes: Updates might also be needed for changes in entity address or registering a DBA.
Depending on the entity, changes could occur multiple times a year or once every few years. Monitoring these changes continuously and filing timely updates can place a significant administrative burden on companies. Small businesses and those with limited resources may find it particularly difficult to comply, increasing their risk of incurring penalties.
Advantages of Annual BOI Reports
An annual reporting system might alleviate some of these challenges. Here are some key benefits:
- Simplified Compliance: Filing a single report annually allows entities to review and consolidate all changes at once, reducing the likelihood of missing deadlines.
- Easier Integration: Professionals, such as accountants and attorneys, could incorporate BOI reporting into their clients’ broader annual service plans.
- Reduced Penalty Risks: The steep penalties for non-compliance under the current system—$591 per day—make it critical for entities to meet deadlines. An annual deadline would be easier to manage and less likely to result in inadvertent violations.
Potential Drawbacks of Annual BOI Reports
While annual reporting offers clear advantages, there are valid concerns:
- Delayed Updates: The purpose of the CTA is to provide law enforcement with timely and accurate information. Annual reporting could delay critical updates, potentially undermining the Act’s objectives.
- Increased Volume: Tens of millions of entities would be filing annual reports, resulting in an overwhelming volume of data for FinCEN to process and store. This could strain resources and reduce the efficiency of the reporting system.
- Redundancy for Static Entities: Many entities may experience no changes in their BOI information for years, if ever. Annual reporting for such entities could create unnecessary administrative overhead without adding value.
Would Annual BOI Reports Make More Sense?
The current 30-day update requirement ensures timely information but places significant demands on businesses. Transitioning to an annual BOI reporting system could simplify compliance and reduce risks for entities, particularly those with frequent changes. However, the potential trade-offs in data timeliness and administrative feasibility for regulators are valid points to consider.
Whether through annual reporting or updates-as-needed, the goal should be a balanced system that meets the needs of both businesses and regulators.