By Ian Redpath, JD, LLM

This article originally appeared in the Summer 2023 edition of the South Carolina CPA Report.

The beneficial ownership information (“BOI”) reporting provisions were part of the Corporate Transparency Act (“CTA”), enacted by Congress as part of the Anti-Money Laundering Act of 2020. These rules are to take effect January 1, 2024, and have been somewhat controversial as this becomes an important determination and reporting that will affect many companies and accountants. On September 30, 2022, regulations were adopted to implement this reporting. These are referred to as the “BOI Final Rule.” (87 Fed. Reg. 59,498)  

The BOI Final Rule requires certain U.S. companies and foreign companies registered to do business in the U.S. to file reports with FinCEN that identify the entity’s beneficial owners and the persons who applied to create or register the entity. On March 24, 2023, the Financial Crimes Enforcement Network (“FinCEN”) released updated FAQ guidance regarding the new beneficial ownership information reporting requirements. These are available on the FinCEN website. 

“Reporting companies,” including a “domestic reporting company” or a “foreign reporting company,” are required to report their beneficial ownership information to FinCEN. A “domestic reporting company” is defined as a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. A “foreign reporting company” is defined as a corporation, limited liability company, or other entity formed under the law of a foreign country that is also registered to do business in any U.S. state or in any Tribal jurisdiction (FinCEN FAQ #7). Certain entities are exempt from reporting, including: (a) “large operating companies”—entities with (1) at least 20 full-time employees in the United States, (2) more than $5,000,000 in annual gross receipts or sales as reported on their prior year’s tax return filed with the Internal Revenue Service, excluding non-U.S. gross receipts or sales, and (3) an operating presence at a physical office within the United States—and their subsidiaries, (b) certain types of: (1) publicly traded companies, (2) banks, (3) money transmitting businesses, (4) insurance companies, and (5) pooled investment vehicles; (c) broker-dealers registered with the SEC, and (d) certain investment companies (FinCEN FAQ #8). 

For reporting companies registered before January 1, 2024, they must submit their legal name, any trade names, their address, their jurisdiction of formation, their Taxpayer Identification Number (“TIN”); and their “beneficial ownership information”. Beneficial ownership information is identifying information (including name, date of birth, address, and a unique identifying number from an identification document, such as a driver’s license or passport) about the individuals who directly or indirectly own or control a company.  

Those registered on or after January 1, 2024, must report similar identifying information for the persons who applied to create the entity (for domestic entities) or to register it to do business in the U.S. (for foreign entities), or who directed these activities.  

Reporting companies registered to do business in the United States before January 1, 2024, are not required to file their reports until January 1, 2025. Reporting companies created or registered on or after January 1, 2024, must file their reports within 30 calendar days of receiving notice that the company’s creation or registration is effective. FinCEN will not accept reports before January 1, 2024. (FinCEN, FAQ #5). In addition, reporting companies are required to update reports within 30 days if there are any changes to the information reported. Why does FinCEN want this information? 

A beneficial owner, as to a reporting company, is any individual who (1) directly or indirectly exercises “substantial control” over the reporting company or (2) directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company. “Substantial control” is based on what power an individual exercises over a reporting company, particularly in regard to directing or influencing important decisions the reporting company makes. It is essentially a facts and circumstances test. A “Beneficial owner” includes all “senior officer[s],” such as a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer in function, regardless of title. (FinCEN FAQ #9). A  reporting company must identify all individuals with “substantial control” over the reporting company. 

A company applicant is any individual who (1) (a) directly files the document that creates or first registers the reporting company (for a “domestic reporting company”) or (b) directly files the document that first registers the reporting company to do business in the United States (for a “foreign reporting company”); and (2) is primarily responsible for directing or controlling the filing of the relevant document if more than one individual is involved in the filing of the document (for both foreign and domestic reporting companies).  

Even though this reporting will not occur until 2024 at the earliest, it is important to be aware of what is required. Those representing companies or working for companies that will be reporting requirements should ensure they have systems in place to capture the information necessary for reporting. 

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