Executive summary: FinCen’s new FAQs aim to add more clarity regarding the BOI reporting rules
On March 24, 2023, the Department of the Treasury issued new FAQs clarifying requirements for reporting information on beneficial owners and company applicants that is due starting January 2024.
FinCen releases FAQs to clarify Beneficial Ownership Information (BOI) reporting
On March 24, 2023, the Financial Crimes Enforcement Network (FinCEN) published guidance materials in the form of frequently asked questions (FAQ) to aid the public in understanding the new beneficial ownership information (BOI) reporting requirements imposed under the Corporate Transparency Act (the Act). Reporting under the new rules is set to begin for certain companies as Jan. 1, 2024, yet many are still struggling to understand the requirements and to implement procedures or controls for complying the rules.
The Corporate Transparency Act was enacted into law in 2020 and requires certain U.S. entities and foreign entities registered in the US to report information about their owners to FINCEN with the expectation that the new regime will aid in targeting money laundering, terrorist financing, tax evasion and other illicit activities. RSM previously released an alert covering the nuts and bolts of the new rules. The new FAQ is explanatory only and does not alter or change the reporting requirements previously issued under the final regulations. Key provisions clarified in the FAQs are highlighted below:
Definition of Beneficial Owner clarified (FAQ #9) - The FAQ somewhat clarifies the definition of a beneficial owner and provides that a beneficial owner is “any individual who, directly or indirectly, (i) exercises substantial control over the entity or (ii) owns or controls not less than 25% of the ownership interests of the entity.” “Substantial control” over a reporting company is dependent on the power they may exercise over the reporting company (e.g. any senior officer is deemed to have substantial control over a reporting company).
The FAQ then walks through three examples of common issues under the rules. Example 1 deals with general ownership under both the percentage ownership test and substantial control test; example 2 deals with the 25% ownership threshold for reporting an owner as a beneficial owner; example 3 deals with situations where there are multiple owners and officers that can be considered beneficial owners of the company at issue.
Definition of a “Company Applicant” clarified with examples (FAQ #11) - Reporting companies are generally required to report not only their beneficial owners, but also “Company Applicants.” The regulations define a “Company Applicant” as: (i) the individual who directly files the document that creates the entity or, in the case of a foreign reporting company, the individual who directly files the document that first registers the entity to do business in the US and (ii) the individual who is primarily responsible for directing or controlling the filing of the relevant document by another. However, the FAQ clarifies that no more than two people need to be identified as company applicants and that company applicant reporting only applies to companies formed after Jan. 1, 2024. The FAQ also provides two examples for how to determine who the company applicants are and how to handle situations where there are multiple company applications.
Reportable information explained (FAQ #12 & 13) - Besides reporting the beneficial owners’ name, address, taxpayer identification number, and other identifying information, FinCEN also requires reporting companies to report the owner’s unique identifying number from an acceptable identification document. The FAQ then lays out what type of identification documents are acceptable and specifies that a current/non-expired driver’s license issued by any state in the U.S., a non-expired identification document issued by any U.S. state or local government or Indian Tribe, a non-expired passport issued by the U.S. government, or if none of the other forms are available - an ID number from a non-expired passport issued by a foreign government. Interestingly, a foreign passport is the least acceptable form of ID under these rules.
Procedures for Safeguarding BOI Information Planned (FAQ #16) – since FinCEN has indicated that it intends to share BOI information with law enforcement agencies it clarified that it will also implement protocols to safeguard the information that it receives, including building a secure cloud-based IT system to store the information and establishing processes and procedures to ensure that only authorized users can access beneficial ownership information for authorized purposes.
Companies should review the BOI rules and official guidance carefully (including the recently released FAQs) to determine what steps should be taken now to ensure compliance when the new rules take effect in Jan. 2024. Whether you’re performing an assessment to determine your reporting obligations, documenting exceptions, or designing and distributing a form for collecting reportable data, it is important to take action now!
