Special report following the prepared remarks of Andrea Gacki, the new Director of FinCEN, delivered virtually to The Assembly at the Association of Certified Anti-Money Laundering Specialists (ACAMS) on October 3, 2023. This is for discussion purposes only and not intended to be relied upon as tax or legal advice. It has been said that the U.S. is a tax haven and hypocritical about beneficial ownership transparency, especially with the ability to create anonymous LLCs in jurisdictions like Delaware, Nevada, and Wyoming. The passage of the Corporate Transparency Act (CTA) may, however, mark the beginning of the end of the U.S. as a real or perceived tax haven. Beginning 1 January 2024, FinCEN (the Financial Crimes Enforcement Network) will require “reporting companies” to report information about its beneficial ownership. BENEFICIAL OWNERSHIP: A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests. REPORTING COMPANIES: Companies required to report beneficial ownership are called reporting companies. There are two types of reporting companies:
Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.
WHEN TO REPORT: FinCEN will begin accepting beneficial ownership information (BOI) reports on 1 January 2024. BOI reports will not be accepted before then. However, the BOI form is not available yet. Once available, information about the form will be posted on FinCEN’s Beneficial Ownership Information Reporting website.
A reporting company created or registered to do business before 1 January 2024 will have until 1 January 2025 to file its initial BOI report.
A reporting company created or registered on or after 1 January 2024 will have 30 days to file its initial beneficial ownership information report.
WHERE TO REPORT: If you are required to file a BOI report, it will be filed through FinCEN’s online secure filing system. However, this system is currently being developed, but should be available by 1 January 2024. Reporting companies may use third-party service providers to submit BOI reports. For further inquiries, please contact Auric Private Client Advisory LLC. In our opinion, these rules, while a step towards more transparency in the U.S., appear to be more like a “paper tiger” than real substance because the information will not be automatically exchanged with other agencies within the U.S. or with other jurisdictions outside the U.S., unlike, for example, the Common Reporting Standard (CRS) or Foreign Account Tax Compliance Act (FATCA), which exchange information automatically. Thus, unless there is a valid request from an authorized official, the information will simply reside in the FinCEN database unused. Notably, the rules also do not adequately address reporting for trusts, which are not “reporting companies,” but could be a reportable beneficial owner creating uncertainty. Nevertheless, these rules will create reporting burdens for many with civil or even criminal penalties for not reporting. As a result, many private client service providers or fiduciaries may be required to report the beneficial ownership for domestic or foreign reporting companies and/or be reported as a company applicant on or after 1 January 2024. Further to our last segment on FinCEN reporting for non-financed (i.e., cash) purchases of U.S. real estate (see FinCEN Geographic Targeting Orders: New Anticipated Rules for Cash Purchases of U.S. Real Estate), Ms. Gacki also remarked that FinCEN is developing a Notice of Proposed Rulemaking (NPRM) to increase transparency in the U.S. real estate market and aims to issue the NPRM later this year (for general information on the Rulemaking Process see A Guide to Rulemaking Process). ADDITIONAL RESOURCES: FinCEN’s Small Entity Compliance Guide for beneficial ownership information reporting includes:
A flowchart to help identify if a company is a reporting company (see Chapter 1.1, “Is my company a ‘reporting company’?”)
A table and checklists for each of the 23 exemptions that may help determine whether a company meets an exemption (see Chapter 1.2, “Is my company exempt from the reporting requirements?”)
Checklists and examples that may assist in identifying beneficial owners (see Chapter 2.3 “What steps can I take to identify my company’s beneficial owners?” This chapter also includes separate sections with more information about substantial control and ownership interest: Chapter 2.1 “What is substantial control?” and Chapter 2.2 “What is ownership interest?”)
A checklist to help determine whether any exceptions apply to individuals who might otherwise qualify as beneficial owners (see Chapter 2.4. “Who qualifies for an exception from the beneficial owner definition?”)
A summary of the company applicant reporting requirement (see Chapter 3.1, “Is my company required to report its company applicants?”)
A checklist to help identify the information required to be reported (see Chapter 4.1, “What information should I collect about my company, its beneficial owners, and its company applicants?”)
Additional information on FinCEN identifiers (see Chapter 4.3, “What is a FinCEN identifier and how can I use it?”)
Please refer to the Beneficial Ownership Information Reporting Reference Materials for details on specific provisions. FinCEN has prepared Frequently Asked Questions (FAQs) in response to inquiries received relating to the Beneficial Ownership Information Reporting Rule, a PDF version of the FAQs is available here.