Reported by Gregory Fryer

Most private companies in the United States will soon need to disclose sensitive ownership and control information to FinCEN, a bureau of the U.S. Treasury Department. The new reporting regime arises under the Corporate Transparency Act (CTA), enacted on January 1, 2021 to strengthen existing anti-money laundering statutes. Rulemaking under the CTA continues, but the reporting framework contained in FinCEN’s “Beneficial Ownership Information Reporting Requirements” rule will begin to be implemented by January 1, 2024. This article is intended to explain the major elements of FinCEN’s published rule but does not cover each and every aspect of the rule.

Which Entities Must File Reports?

To appreciate how many entities operating in the U.S. will need to file BOI Reports, it is helpful first to understand what types of entities are notsubject to BOI reporting.

Exempt Entities. Here are the major categories of exempt entities:

• Banks and bank holding companies, SEC-registered broker-dealers and investment advisers, SEC-registered mutual funds and other investment companies, SEC-reporting venture capital fund advisers, and certain other categories of government-regulated entities;
• Venture capital funds or other pooled investment vehicles if operated or advised by an already-regulated entity referenced above;
• SEC-reporting public companies;
• Any entity that (i) has more than 20 full-time employees in the U.S., (ii) regularly conducts business at a physical location in the U.S., (iii) filed a federal income tax return for the previous year, and (iv) reported on that tax return more than $5 million in U.S. gross receipts/sales (net of returns and allowances) for that previous year on a consolidated basis (these entities are referred to below as “Exempt Larger Companies”);
• Most tax-exempt organizations, charitable trusts, and private foundations;
• Most tax-exempt political organizations; and
• Governmental authorities or entities.

Importantly, the list of exempt entities also includes wholly-owned subsidiaries of most of these exempt entities, including those of public companies and Exempt Larger Companies.

An inactive entity also is exempt if it (i) was already in existence on January 1, 2020, (ii) holds no assets (including ownership interests in other companies), (iii) during the previous 12-month period neither sent nor received more than $1,000 of funds, whether directly or through a bank account or other financial account, (iv) has no non-U.S. owners, and (v) has not experienced any change in ownership during the preceding 12 months.

Note that the Exempt Larger Companies category will exclude many existing companies. However, newly formed entities cannot qualify for this particular exemption – regardless of employee count – until they have filed a prior year tax return reporting at least $5 million in gross receipts. Once all qualifying conditions are met, the company will need to update its prior BOI Report to show its newly acquired exempt status.

Excluded Entities. Domestic trusts and general partnerships that are created by operation of law without the filing of a formation document with a secretary of state (or similar office) under the law of a State or Indian tribe are excluded from having to file BOI Reports, as are sole proprietorships. Foreign companies are excluded, too, unless and until they register to do business in the U.S. by filing a document with a secretary of state (or similar office) under the law of a State or Indian tribe.

The Remainder. Generally, all other entities with a presence or operations in the U.S.(referred to here as “Reporting Companies”) will need to file BOI Reports.

Read full report: https://www.jdsupra.com/legalnews/fincen-boi-reporting-requirements-in-3814296/