US beneficial ownership information reporting: A summary of FinCEN requirements

FinCEN estimates that the US is home to over 30 million legal entities (such as corporations, limited liability companies and partnerships) and that over 5 million new entities are established each year. As a result, the new FinCEN regulations will require action by many millions of entities based inside and outside the US. Failure to comply with FinCEN’s final regulations can lead to civil and criminal penalties, including a maximum civil penalty of $500 per day (up to $10,000) and imprisonment for up to two years.

The new Act is part of the US government’s effort to promote corporate transparency and better align the country’s anti-money laundering regime with international standards.

Reporting companies and exceptions

Under the new regulations, certain entities called “reporting companies” must submit specified beneficial ownership information to FinCEN. FinCEN separates these reporting companies into two types — domestic and foreign. A domestic reporting company is an entity created by filing a document with a secretary of state or similar office in a US jurisdiction. A foreign reporting company is an entity created under the law of a jurisdiction outside the US that’s registered to do business in the US.

FinCEN clarifies that reporting companies will include “limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, in addition to corporations and LLCs, because such entities are generally created by a filing with a secretary of state or similar office.” Other legal entity types, such as certain trusts, are excluded.

Twenty-three entity types are exempt from the requirement to submit beneficial owner information (BOI) reports to FinCEN. These exemptions don’t apply directly to small businesses and are primarily for larger businesses. Two prominent examples are public companies and “large operating companies,” the latter defined as entities with more than 20 full-time US-based employees, over $5 million in gross receipts or sales from sources inside the US that have a physical operating presence in the US. FinCEN reasons that these companies and many other exempt entities “are already subject to substantial federal and/or state regulation or already have to provide their beneficial ownership information to a governmental authority."

Who must file: Beneficial owners and company applicants

FinCEN’s final rule indicates that reporting companies must file FinCEN reports that identify the following individuals:

• the beneficial owners of the entity
• the company applicants of the entity

Beneficial owners

The rule generally defines a beneficial owner as an individual who:

• exercises substantial control over the reporting company, or
• owns or controls at least 25 percent of the ownership interests of a reporting company

The rule defines “substantial control over the reporting company” as an individual who:

• serves as a senior officer of the reporting company
• has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body)
• directs, determines, or has substantial influence over important decisions made by the reporting company
• has any other form of substantial control over the reporting company

Company applicants

Under the rule, a “company applicant” is limited to only one or two individuals, specifically those who:

• directly file the document to create or register the reporting company and
• are primarily responsible for directing or controlling such filing if more than one individual is involved in the filing

The final rule clarifies that company applicants may be third parties — such as a corporate services provider or law firm — hired by the reporting company to establish the entity.

BOI reports: Required information

The new FinCEN rule requires each reporting company to provide the following information about the company:

• the full name of the reporting company
• any trade name or “doing business as” name of the reporting company
• the business street address of the reporting company
• the state or tribal jurisdiction of formation of the reporting company (or for a foreign reporting company, the state or tribal jurisdiction where such company first registers), and
• an IRS TIN of the reporting company (or, if a TIN hasn’t been issued yet, a Dun & Bradstreet Data Universal Numbering System number or legal entity identifier)

The reporting company must provide the following information about the company’s beneficial owners and its company applicants:

• full legal name
• date of birth
• current residential or business street address, and
• unique identifying number from an acceptable identification document, including an image of the identifying document

Reporting companies that exist or are registered when the rule goes into effect do not have to report on their company applicants.

Individuals may send the above information to FinCEN directly by obtaining a FinCEN identifier.

Effective date and ongoing deadlines

FinCEN’s Beneficial Ownership Information Reporting Rule goes into effect 1 January 2024.

Reporting companies registered or created before that date will have until 1 January 2025 to file their first BOI reports. Reporting companies registered or created after the 2024 effective date will have 30 days after notification of creation or registration to file their first reports.

If a reporting company becomes aware that information on a previously submitted report is inaccurate, it has 30 days to correct the information.

Next steps for FinCEN and US companies

The Treasury Department has not yet built the BOI reporting platform, which will cost an estimated $82 million to establish and more than $35 million annually to maintain. FinCEN will continue to develop guidance in this area to inform reporting companies of their obligations.

US and non-US organisations that maintain or plan to establish a US legal entity should be aware of the forthcoming obligations to avoid missing the deadline and possibly incurring penalties. Effective preparation will include determining beneficial owners and company applicants and gathering the required information from them.

Ryan Moore, manager, US tax at Vistra, contributed to this article.