FinCEN Issues Final Beneficial Ownership Reporting Rules

By David P. Donnelly, CPA-Houston

The Financial Crimes Enforcement Network (FinCEN) issued final rules in September 2022 regarding the beneficial ownership reporting required by the Corporate Transparency Act. These rules become effective, and the reporting will begin for affected entities, on Jan. 1, 2024.

These rules require new disclosures for some, but not all, business entities. These disclosures are somewhat similar to the disclosures currently required to open bank accounts. For existing businesses, however, this will be new reporting and a new level of disclosure (addresses, copies of identification documents and date of birth), which may cause some consternation for business owners.

Reporting entities:

• Domestic business entities (corporations, LLCs, limited partnerships, business trusts, etc.) that are registered with the states or an Indian Tribe,
• Foreign business entities that are registered with the states or an Indian Tribe,
• Large operating companies are excluded:
  • More than 20 full-time employees,
  • More than $5 million in gross receipts, and
  • An operating presence in the U.S.
• Also excluded are inactive entities:
  • In existence on or before Jan. 1, 2022,
  • Not engaged in a trade or business,
  • No ownership or control by a foreign person, and
  • No assets in the U.S. or abroad.
• Other excluded entities include accounting firms, SEC-reporting issuers, government authorities, banks, credit unions, bank holding companies, broker/dealers, securities exchanges or clearing agencies, registered investment companies or advisers, insurance companies, public utilities, tax exempt entities and certain other entities.

What will be reported:

• Beneficial owners, defined as an individual who exercises substantial control over the reporting entity or who owns or controls at least 25% of the reporting entity,
  • Four items are to be reported for each beneficial owner:
    • Name, address, date of birth of each owner,
    • An image of an acceptable identification document with a unique identifying number:
      • Passports and driver’s licenses will be acceptable.
      • FinCEN will also provide a unique identifier.
    • The proposed regulations encouraged the voluntary disclosure of the taxpayer identification number or Social Security number of the owner(s). This was removed in the final rules.
  • For the reporting entity:
    • Full legal name and any assumed or ”doing business as” name,
    • Address,
    • Jurisdiction of formation and registration of the entity, and
    • Taxpayer identification number of the reporting entity.

When to report:

• On or after Jan. 1, 2024, newly formed entities must report within 30 days after formation.
• Existing entities will have one year after Jan. 1, 2024, to report.
• Reporting entities must report changes in beneficial ownership within 30 days.

The reporting format has not been released. FinCEN envisions electronic filing similar to the FinCEN 114. Although the original estimate was that compliance would only take 40 minutes, the current estimate of the time needed to report is up to 11 hours for complex entities.

The penalty for not reporting or for a person “to willfully provide or attempt to provide, false or fraudulent beneficial ownership information” is $500 per day; there are also potential criminal penalties.

This disclosure is not a tax return. However, we can expect that our clients will look to tax professionals to assist them with the reports, especially for existing entities. We should be ready to let our clients know who must report, what must be reported and when to report.

The discussion above is only a summary of the rule; practitioners are encouraged to seek further information on this topic.

FinCEN Beneficial Ownership Information Reporting

Federal Register FinCEN BOI Reporting Requirements

FinCEN BOI Information Reporting Rules Fact Sheet

FinCEN provides time estimates for compiling beneficial ownership details | Journal of Accountancy