Latest FinCEN Guidance on the CTA Reporting Rules

On January 12, 2023, the Financial Crimes Enforcement Network (FinCEN) released additional updated guidance to the Beneficial Ownership Information Reporting Frequently Asked Questions regarding the Beneficial Ownership Information (BOI) Reporting Rule adopted under the Corporate Transparency Act. The update clarifies previous ambiguities in reporting requirements, provides direction on previously unaddressed scenarios, and continues to offer guidance on general compliance matters. These updates provide important clarity for reporting entities to navigate and ensure compliance with the Corporate Transparency Act’s BOI reporting requirements. Our summary of the new Frequently Asked Questions follows:

1. Clarification of Reporting Obligations for Companies formed in U.S. Territories

Companies created or registered in U.S. territories, such as Puerto Rico and Guam, are required to report beneficial ownership information unless an exemption to reporting requirements exists. Registration with the territory's secretary of state mandates the reporting of BOI to FinCEN.

2. BOI Reporting While Ownership is in Dispute

In cases where ownership is in dispute and the subject of litigation, BOI should be reported by the reporting company based upon:

• all individuals who exercise substantial control over the company, and;
• all individuals who own or control, or have a claim to ownership or control of, at least 25% ownership of interests in the company.

If the litigation ultimately results in a change in ownership, an updated BOI report is required within 30 days from the conclusion of the relevant litigation.

3. BOI Reporting When a Corporate Entity Owns or Controls 25% or More of Reporting Company

Reporting companies must disclose individuals with substantial control or who own 25% or more of the reporting company’s ownership interest. If that control or interest is held indirectly through a corporate entity, the individuals who control or have the requisite ownership in the entity should be identified, not the intermediate corporation. Exceptions apply for reporting if (i) the beneficial owners of the Reporting Company and the intermediate corporation are the same and the FinCEN identifier of the intermediate corporation is provided, or if (ii) the company is owned 100% by an exempt entity. Reporting companies should not report a corporate entity that acts as an intermediate for individuals who indirectly exercise substantial control or own 25% or more of the reporting company’s ownership interests.

4. Determining the "Primarily Responsible" Individual Directing Filing for Creation or Registration of a Reporting Company

Up to two individuals can be reported as company applicants. The relevant individuals include the person (i) directly filing the documents with the applicable secretary of state (or similar office) and (ii) primarily responsible for directing or controlling the filing. When determining who the appropriate company applicants are, consider who was responsible for making decisions with respect to the filing, how the filing is managed, and the content of the filing. The updated guidance offers specific scenarios for review (for example, if an attorney oversees completion of the document by a paralegal, the attorney is primarily responsible).

5. Exclusion of Third-Party Couriers as Company Applicants

Employees of third-party couriers delivering documents are not considered company applicants; the person requesting courier services assumes the role of the company applicant. Note that this provision applies only to the courier service. If a third-party business formation entity, law firm, or filing service is handling the filing of the document, that filing service is a Company Applicant.

6. Automated Incorporation Services

If a business formation service only provides software, online tools, or generally applicable written guidance that is used to file a creation or registration document for a reporting company, and employees of the business service are not directly involved in the filing of the document, the employees of such services are not company applicants.

7. Acceptance of Identification Documents without Photograph for Religious Reasons

FinCEN will accept identification documents without photographs in the event that the individual submitting identification documents has a religious reason for resisting the submission. Reporting companies can submit an image of the acceptable identification document without the photograph.

8. Reporting Residential Address for Individuals without Permanent Residence

Reporting the current residential address at the time of filing is required, and updates should be filed within 30 days of any change in address or other reporting information. The Small Entity Compliance Guide offers detailed information on reporting requirements.

9. Exemptions for Subsidiaries of Exempt Entities

Subsidiaries with partial control by an exempt entity do not qualify for exemption. To be exempt, a subsidiary's ownership interests must be 100% owned and controlled by an exempt entity.

10. Use of FinCEN Identifier

Reporting Companies have the option to use another entity's FinCEN identifier and full legal name instead of reporting beneficial owners if (i) the other obtains a FinCEN identifier and provides it to the reporting company, (ii) the beneficial owners hold interests in the reporting company through ownership interests in the other entity, and (iii) the beneficial owners of the reporting company and the other entity are the exact same.

Conclusion

The recent updates from FinCEN offer ongoing clarity for companies navigating the complexities of BOI reporting requirements under the Corporate Transparency Act. For more information on BOI reporting obligations under the Corporate Transparency Act, click here.