FinCen releases FAQs to clarify Beneficial Ownership Information (BOI) reporting
ARTICLE | May 19, 2023
Authored by RSM US LLP
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!
Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Aureon Herron-Hinds, Paul Tippetts and originally appeared on 2023-05-19.
2022 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Condley and Company can assist you, please call (325) 677-6251.