The original article was published by Thomas Reuter in the October 2023 Newsletter of Taxes and Wealth Management.

In a further effort to combat money laundering, tax fraud, terrorism financing, drug and human trafficking and other criminal enterprises, in January 2021 the US Congress enacted the Corporate Transparency Act (“CTA”) [1]. The CTA requires certain US and foreign entities to disclose identifying information about the individuals who directly or indirectly own or control the reporting entity. On September 29, 2022, the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) issued a final rule which implemented the CTA’s beneficial ownership information (“BOI”) reporting provisions.

[ 1 P.L. 116-283]

There has been significant backlash regarding this new reporting obligation, particularly from small business owners and spokespersons for small business owners. This new reporting obligation is viewed by many as yet another unnecessary administrative burden placed upon small, medium and large business entities. It is believed that, at this point, a very significant percentage of business entities that do, or may have, a reporting obligation under the CTA are completely unaware of such responsibility.

FinCEN is authorized to disclose such information only to certain authorized government authorities, financial institutions and other “authorized users”.

The following is intended to highlight some of the major issues regarding the obligation of certain entities to report information regarding their beneficial ownership. The material contained herein is believed to be current through September 17, 2023, but additional guidance and material continues to be issued periodically.

Who is Required to Report Beneficial Ownership Information?

A company that is required to report BOI is referred to as a reporting company.

For BOI reporting purposes, a domestic reporting company is defined as:

• A corporation,

• A 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. [2]

  [ 2 In the view of FinCEN, this category of domestic reporting company includes limited liability partnerships, limited liability limited partnerships, business trusts and most limited partnerships, because such entities are generally created by a filing with a secretary of state or similar office. See Beneficial Ownership Information Reporting Rule Fact Sheet, dated September 29, 2022. ]

For BOI reporting purposes, a foreign reporting company is defined as any entity that is:

• A corporation, limited liability company, or other entity formed under the law of a foreign country, and

• Registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.

Who is a Beneficial Owner of a Reporting Company?

For BOI reporting purposes, a beneficial owner of a reporting company is any individual:

1. Who directly or indirectly exercises substantial control over the reporting company, or

2. Who directly or indirectly owns or controls 25 percent or more of the ownership interests of the reporting company.

As a general rule, an individual is considered to have substantial control over a reporting company if “they direct, determine, or exercise substantial influence over, important decisions the reporting company makes.”[3] In addition, all “senior officers”[4] of a reporting company are deemed to have substantial control over the reporting company.

The Beneficial Ownership Information Reporting Frequently Asked Questions (Published March 24, 2023 and updated on August 3, 2023) provide several useful examples for determining whether a particular individual will be considered to have substantial control over a reporting company for BOI reporting purposes.

For these purposes, the term ownership interests For these purposes, the term ownership interests means “arrangements that establish ownership rights in the reporting company, including simple shares of stock as well as more complex instruments.” [5] Additional information regarding the meaning of the term ownership interests is available in the Beneficial Ownership Information Reporting Regulations at 31 CFR § 1010.380(d)(2).

[3 Beneficial Ownership Information Reporting Frequently Asked Questions (Published March 24, 2023 and updated on August 3, 2023), FAQ 9.

4 The term “senior officer” means any individual holding the position or exercising the authority of a president, chief financial officer, general counsel, chief executive officer, chief operating officer, or any other officer, regardless of official title, who performs a similar function. 31 CFR 1010.380(f)(8).

5 See footnote number 3.]

What Information is Required to be Reported?

In addition to having to provide certain information about itself (e.g., its legal name, jurisdiction of formation or registration, etc.), a reporting company is required to provide the following information about its beneficial owners:

• The individual’s name, date of birth, and residential street address;

• A unique identifying number from an acceptable identification document [6]; and

• The name of the state or jurisdiction that issued the identification document.

Are There Exemptions from Having to Comply With the BOI Reporting Requirement?

The CTA provides exemptions from BOI reporting for 23 different types of entities [7], including public companies, certain US government authorities, broker dealers, SEC-registered investment companies and certain types of insurance companies and financial institutions. In many cases, the entities that are exempt from having to file BOI reports are already regulated by federal and/or state regulatory authorities and/or are already required to disclose their BOI to certain governmental authorities.

[6 See Beneficial Ownership Information Reporting Frequently Asked Questions (Published March 24, 2023 and updated on

August 3, 2023), FAQ 13 for a list of what constitutes acceptable

identification documents.

7 Additional information about exempt entities can be found in the Beneficial Ownership Information Reporting Regulations at 31 CFR § 1010.380(c)(2).]

What is a Company Applicant?

Reporting companies that are created or registered after January 1, 2024 are also required to furnish information regarding their company applicants. This additional reporting requirement does not apply to reporting companies that were created or registered before January 1, 2024.

A reporting company cannot have more than two company applicants. The term company applicant means:

• The individual who directly files the document that creates, or first registers, the reporting company [8]; and

• The individual that is primarily responsible for directing or controlling the filing of the relevant documents.

For examples as to how to determine whether a particular individual will be considered to be a company applicant, see Beneficial Ownership Information Reporting Frequently Asked Questions (Published March 24, 2023 and updated on August 3, 2023), FAQ 11.

[8 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.]

What Are the Deadlines for Reporting a BOI?

A reporting company created or registered to do business before January 1, 2024 has until January 1, 2025 to file its initial BOI report.

A reporting company created or registered to do business on or after January 1, 2024 will have 30 days from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier, to file its initial BOI report.

Recently, there has been some speculation that the filing deadline that pertains to a reporting company created or registered to do business on or after January 1, 2024 will be extended.

Summary

The CTA has created yet another reporting obligation for certain US and foreign businesses. The obligation of some reporting companies to report BOI may be just around the corner. For others, the reporting obligation takes effect on January 1, 2025. Although there has been some talk regarding the extension of certain of the relevant filing deadlines, reporting companies and their advisors who have not already done so, would nonetheless be well advised to familiarize themselves with the relevant regulations and other applicable guidance as soon as possible.

Written By Paul Bercovici

Director of International Tax

Adeptus Partners