Treasury’s Financial Crimes Enforcement Network (FinCEN) released final regulations regarding financial transparency disclosures of beneficial corporate ownership per the Corporate Transparency Act (CTA).[1]  At the same time Treasury released a “Beneficial Ownership Information Reporting Rules Fact Sheet”[2] that described the basic reporting requirements.

Entities Required to Report

Most small closely held corporations and LLCs will be required to file under this program once the program is underway.  While there are a number of exempt categories, the largest exemption is for “large operating companies” under 31 CFR 1010.380(c)(2)(xiii) which is an entity that:

• Employs more than 20 full time employees in the United States,

• Has an operating presence at a physical office within the United States; and

• Filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.

Since most privately held companies will fall below those limitations, they will be required to file the information return with FinCEN or face large financial consequences, as the other exceptions to filing are generally very specialized and narrow.

Initial Reports

Initial reports will be required to be filed as follows:

• Any domestic reporting company created before January 1, 2024 and any entity that became a foreign reporting company before January 1, 2024 shall file a report not later than January 1, 2025,

• Any domestic reporting company created on or after January 1, 2024 shall file a report within 30 calendar days of the earlier of the date on which it receives actual notice that its creation has become effective or the date on which a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the domestic reporting company has been created,

• Any entity that becomes a foreign reporting company on or after January 1, 2024 shall file a report within 30 calendar days of the earlier of the date on which it receives actual notice that it has been registered to do business or the date on which a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the foreign reporting company has been registered to do business, and

• Any entity that no longer meets the criteria for any exemption under paragraph (c)(2) of this section shall file a report within 30 calendar days after the date that it no longer meets the criteria for any exemption.[3]

Obviously, that initial report will require a lot of clients of local and regional CPA firms to file a report during 2024.

Information Found in the Initial Report

The initial report will contain the following information:

• For the reporting company:

  • The full legal name of the reporting company;

  • Any trade name or ‘‘doing business as’’ name of the reporting company;

  • A complete current address consisting of:

    • In the case of a reporting company with a principal place of business in the United States, the street address of such principal place of business; and

    • 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 of the reporting company;

  • For a foreign reporting company, the State or Tribal jurisdiction where such company first registers; and

  • The Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN)) of the reporting company, 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 such jurisdiction;

• For every individual who is a beneficial owner of such reporting company, and every individual who is a company applicant with respect to such reporting company:

  • The full legal name of the individual;

  • The date of birth of the individual;

  • A complete current address consisting of:

    • In the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business; or

    • In any other case, the individual’s residential street address;

  • A unique identifying number and the issuing jurisdiction from one of the following documents:

    • A non-expired passport issued to the individual by the United States government;

    • A non-expired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual;

    • A non-expired driver’s license issued to the individual by a State; or

    • A non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the documents described in paragraph (b)(1)(ii)(D)(1), (b)(1)(ii)(D)(2), or (b)(1)(ii)(D)(3) of this section; and

  • An image of the document from which the unique identifying number in paragraph (b)(1)(ii)(D) of this section was obtained.[4]

A beneficial owner is defined as:

For purposes of this section, the term ‘‘beneficial owner,’’ with respect to a reporting company, means any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.[5]

The regulations contain a detailed description of items the create substantial control that would make an individual a beneficial owner at 31 CFR 1010.308(d)(1).

Requirement to File an Updated Report

If circumstances change and an updated report is required, it must be filed within 30 days after the date on which the change occurs.[6]

Penalties for Failure to Comply

Failure to comply with these reporting rules can lead to significant penalties.  The website JDSPUPRA, reporting on Section 6403 of the CTA that provides for this reporting, noted:

For willfully providing, or attempting to provide, false or fraudulent BOI or willfully failing to report (or provide an update report), the fines/penalties are:

• Civil monetary penalties of $500 for each day that the violation continues or has not been remedied; and

• Criminal penalties of not more than $10,000, imprisonment of not more than two years, or both.[7]

The article goes on to note a safe harbor exception for rapidly correcting an inaccurate report:

There is a Safe Harbor for persons acting in good faith to correct inaccurate information submitted within 90 days of the inaccurate report.[8]

[1] RIN 1505-AB49, September 30, 2022, https://www.govinfo.gov/content/pkg/FR-2022-09-30/pdf/2022-21020.pdf, retrieved September 30, 2022

[2] “Beneficial Ownership Information Reporting Rule Fact Sheet,” Financial Crimes Enforcement Network web page, September 29, 2022, https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet (retrieved September 30, 2022)

[3] 31 CFR 1010.308(a)(1)

[4] 31 CFR 1010.308(b)(1)

[5] 31 CFR 1010.308(d)

[6] 31 CFR 1010.308(a)(2)

[7] Baker Donelson, “Corporate Transparency Act Requires Beneficial Ownership Reports,” JDSUPRA website, February 8, 2022, https://www.jdsupra.com/legalnews/corporate-transparency-act-requires-1852343/ retrieved September 30, 2022

[8] Baker Donelson, “Corporate Transparency Act Requires Beneficial Ownership Reports,” JDSUPRA website, February 8, 2022