Beneficial Ownership Information Reporting of US Companies and Foreign Companies Registered to Do Business in the US-Proposed Regulations

The Corporate Transparency Act (CTA) passed in October 2019, requires beneficial ownership information (BOI) reporting to the Financial Crimes Enforcement Network (FinCEN) on individuals that control or own 25% or more of an entity. This is separate from any foreign bank account reporting already presently required to be filed annually with FinCEN on Form 114. Highlighted below are key requirements of the proposed CTA regulations you should consider.

The Proposed Regulations

The proposed regulations address, among other things, who must report BOI, when it must be reported and what must be reported. However, it’s important to note the due dates are based upon the regulations being finalized, which may be later this year. Present entities are required to file reports “not later than one year after the effective date of the regulation.”

CTA establishes BOI reporting requirements for certain types of corporations, limited liability companies (LLCs) and other entities created in or registered to do business in the United States. Presently, most trusts are not included in the types of entities required to report. The proposed regulations identify two types of reporting companies:

1. Foreign. These would include corporations, LLCs or other entities formed under the law of a foreign country and registered to do business in any US state or tribal jurisdiction. In keeping with the CTA, 23 types of entities would be exempt from the definition of “reporting company.”
2. Domestic. These would include corporations, LLCs or other entities created by the filing of a document with a Secretary of State or similar office under the law of a US state or Indian tribe.

The proposed rules would also require reporting companies to file reports with the FinCEN that identify two categories of individuals:

1. The beneficial owners of the entity
2. Individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business. This might impact service providers (e.g., attorneys) or others that register the business. 

Exempt Entities

Large operating entities (and public companies) are exempt from reporting beneficial ownership under the CTA. A large operating entity includes companies that employ more than 20 people, report more than $5 million of US-sourced revenue on their tax returns and have a physical presence (office) in the United States. This can be easily tested for presently existing entities, but can create questions for new entities started after the date the regulations are finalized and have not had a year’s activity to generate the $5 million revenue amount, or that may have started with less than 20 employees but have that many by year-end.

Monitor Date of Final Regulations

It will be important to monitor the publication of the final regulations in the Federal Register as any new entities started after that date will have 14 days in which to file, subject to transitions rules included with the final regulations. If you have questions about your present entity’s requirements to report or if you want to know if the regulations have been finalized yet, contact a Moore Doeren Mayhew advisor today.

Contact:

James Miesowicz