FinCEN issues final rule implementing the reporting requirements of the Corporate Transparency Act

By Sandra Feldman, Publications Attorney, CT Corporation

The Corporate Transparency Act (CTA) requires “reporting companies” to file a report with the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) containing personal identifying information about the company’s beneficial owners and applicants. The information collected will be kept in a private database maintained by FinCEN with access limited to federal agencies, state agencies with a court order, and financial institutions with the consent of the company.

The details for how this reporting obligation will be implemented were left for FinCEN to provide through rulemaking. On September 29, 2022, FinCEN issued a final rule implementing the beneficial ownership (BOI) reporting requirements. The rule describes who must file a BOI report, what information must be reported, and when a report is due. The effective date for the final rule is January 1, 2024. Below is a summary of some of the major issues addressed by the final rule.

1. What is a “reporting company”?
A domestic reporting company is defined as any entity that is a corporation, a limited liability company, or is created by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe.

A foreign reporting company is defined as any entity that is a corporation, a limited liability company, or other entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by the filing of a document with a Secretary of State or similar office under the law of a state or Indian tribe.

2. What entities are exempt from the definition of “reporting company” and do not have to file a BOI report?
There are 23 exemptions. Most are for companies that are already subject to substantial federal or state regulation under which their beneficial ownership may already be known. This includes, among others, entities that file reports with the SEC, governmental authorities, banks, credit unions, money services businesses, investment advisors, securities brokers and dealers, tax exempt entities, entities assisting tax exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, inactive entities, subsidiaries of certain exempt entities, accounting firms, and large operating companies.

3. What is a “large operating company”?
The exemption for a “large operating company” is available to any entity that (1) employs more than 20 full time employees in the United States, (2) has an operating presence at a physical office within the United States, and (3) has filed a federal income tax or information return in the United States for the previous year demonstrating more than $5 million in gross receipts or sales on the entity’s IRS Form 1120 or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under Federal income tax principles.

The term “has an operating presence at a physical office within the United States” means that an entity regularly conducts its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.

4. When is the initial BOI report required to be filed with FinCEN?
Any domestic reporting company created on or after January 1, 2024, must file a report within 30 calendar days of either receiving actual notice that its creation has become effective or the Secretary of State or similar office first providing public notice it’s been created, such as through a publicly accessible registry, whichever occurs first.

Any entity that becomes a foreign reporting company on or after January 1, 2024, must file a report within 30 calendar days of either receiving actual notice that it has been registered to do business or the Secretary of State or similar office first providing public notice it’s been registered, such as through a publicly accessible registry, whichever occurs first provides public notice, such as through a publicly accessible registry, that the foreign reporting company has been registered to do business.

A domestic reporting company created before January 1, 2024, and an entity that became a foreign reporting company before January 1, 2024, must file a report not later than January 1, 2025.

5. What information is required to be set forth in the initial report?
Information must be provided about the reporting company, its beneficial owners, and its company applicants.

A. Information about the reporting company:

• its full legal name,
• any trade or “doing business as” names,
• a complete current address consisting of: (i) in the case of a reporting company with a principal place of business in the United States, the street address of the principal place of business, and (ii) in all other cases, the street address of the primary location in the United States where the reporting company conducts business,
• the state, tribal or foreign jurisdiction of formation,
• for a foreign reporting company, the state or tribal jurisdiction where the company first registers, and
• the IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number) or where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of that jurisdiction.

• full legal name,
• date of birth,
• complete current address consisting of: (i) in the case of a company applicant who forms or registers an entity in the course of the company applicant’s business, the street address of the business, or (ii) in any other case, the individual’s residential street address,
• unique identifying number and the issuing jurisdiction from one of the following documents: (i) a non-expired passport issued to the individual by the United States government, (ii) a non-expired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual, (iii) a non-expired driver’s license issued to the individual by a State, or (iv) a non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the other documents described, and
• an image of the document from which the unique identifying number was obtained.

6. Do reporting companies existing before January 1, 2024, have to provide company applicant information?
If a reporting company was created or registered before January 1, 2024, the reporting company must report that fact but is not required to report information with respect to any company applicant. It is only required to report information about the reporting company and its beneficial owners.

7. When are updated reports required to be filed?
If there is any change with respect to required information previously submitted to FinCEN concerning a reporting company or its beneficial owners, including any change with respect to who is a beneficial owner or information reported for any particular beneficial owner, the reporting company must file an updated report within 30 calendar days after the date on which the change occurs.

With respect to a deceased beneficial owner, an updated report identifying new beneficial owners must be filed within 30 calendar days of the settlement of the beneficial owner’s estate.

Reporting companies are not required to update previously reported information about their company applicants. However, reporting companies will still be required to correct any inaccurate information previously reported about their company applicants.

Reporting companies are required to update the image of the identifying document when there is a change in the name, date of birth, address or unique identifying number on the document.

8. When are corrected reports required to be filed?
If any report was inaccurate when filed and remains inaccurate, the reporting company must file a corrected report within 30 calendar days after the date on which the reporting company becomes aware or has reason to know of the inaccuracy.

9. What does a company do upon a change in its status as a reporting company or an exempt entity?
Any entity that was exempt but that no longer meets the criteria for any exemption must file a BOI report within 30 calendar days after the date that it no longer meets the criteria for any exemption.

If a reporting company meets the criteria for any exemption subsequent to the filing of an initial report, this change will be deemed a change with respect to information previously submitted to FinCEN, and the entity must file an updated report. An updated report filed by an entity that subsequently qualifies for an exemption must indicate that the filing entity is no longer a reporting company.

10. What is a FinCEN identifier, how is it obtained, and how is it used?
A FinCEN identifier is a unique number issued by FinCEN to individuals and reporting companies. An individual may submit an application for a FinCEN identifier that contains all of the information that otherwise has to be set forth in the initial report about that individual. An individual who has obtained a FinCEN identifier may provide it to the reporting company and the reporting company can include the FinCEN identifier in lieu of the information otherwise required.

A reporting company may obtain a FinCEN identifier by submitting to FinCEN an application at or after the time that the entity submits an initial report. Each FinCEN identifier is specific to the individual or company and only one FinCEN identifier can be obtained.

If there is any change with respect to required information previously submitted to FinCEN in the application for the FinCEN identifier, the individual or reporting company must file an updated application reflecting the change within 30 calendar days after the date on which the change occurs. If the application was inaccurate when filed and remains inaccurate, the individual or reporting company must file a corrected application within 30 calendar days after the date on which the individual or reporting company becomes aware or has reason to know of the inaccuracy.

11. What is the manner in which reports and applications must be filed with FinCEN?
Each report or application must be filed with FinCEN in the form and manner that FinCEN prescribes in the forms and instructions for the report or application, and each person filing the report or application must certify that the report or application is true, correct, and complete.

12. Who is responsible for filing the report and making the certification?
FinCEN states that while an individual may file a report on behalf of a reporting company, the reporting company is ultimately responsible for the filing. The same is true of the certification. The reporting company will be required to make the certification, and any individual who files the report as an agent of the reporting company will certify on the reporting company's behalf.

13. Who is considered to be a “beneficial owner”?
A beneficial owner is defined as any individual who, directly or indirectly, either exercises substantial control over the reporting company or owns or controls at least 25 percent of the ownership interests of the reporting company.

14. What is considered “substantial control” over a reporting company?
An individual exercises substantial control over a reporting company if the individual (1) serves as a senior officer, (2) has authority over the appointment or removal of senior officers or a majority of the board of directors or similar body, (3) directs, determines, or has substantial influence over important decisions made by the reporting company, including among others, (i) the nature, scope, and attributes of its business including the sale, lease, mortgage, or other transfer of any principal assets, (ii) a reorganization, dissolution, or merger, (iii) major expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget, (iv) the selection or termination of business lines or ventures, (v) compensation schemes and incentive programs for senior officers, (vi) the entry into or termination, or the fulfillment or non-fulfillment, of significant contracts, or (vii) amendments of any substantial governance documents, or (4) has any other form of substantial control over the reporting company.

The rule exempts from the definition of beneficial owner (1) a minor child, (2) a nominee, intermediary, custodian, or agent of another individual, (3) an employee acting solely as an employee, (4) an individual whose only interest in a reporting company is a future interest through a right of inheritance, and (5) a creditor of the reporting company.

15. What is a “company applicant”?
For a domestic reporting company, a company applicant is the individual who directly files the document that creates the domestic reporting company. For a foreign reporting company, a company applicant is the individual who directly files the document that first registers the foreign reporting company. For both a domestic and a foreign reporting company, a company applicant is also the individual who is primarily responsible for directing or controlling the filing if more than one individual is involved in the filing of the document.

16. What is a reporting violation?
It is unlawful for any person to willfully provide, or attempt to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, to FinCEN or to willfully fail to report complete or updated beneficial ownership information to FinCEN. The term “person” includes any individual, reporting company, or other entity. The term “beneficial ownership information” includes any information provided to FinCEN pursuant to this rule.

Conclusion
This final rule is one of three rulemakings planned to implement the CTA. There will also be a rulemaking to establish rules for who may access BOI, for what purposes, and what safeguards will be required to secure and protect the information, and a rulemaking to revise FinCEN’s customer due diligence rule.

This article has discussed some, but not all, of the provisions of the final rule. Interested persons should review the final rule, which is codified at 31 CFR 1010, Sec. 1010.380 and which can be found in the Federal Register, 87 FR 59498 and accessed here: Beneficial Ownership Information Reporting Requirements.