Beneficial ownership reporting – new FinCEN regulations

FinCEN (the U.S. Department of Treasury’s Financial Crimes Enforcement Network) recently issued a Notice of Proposed Rulemaking, adding a new reporting requirement of beneficial ownership information (BOI).

The purpose of the rule is to stop bad actors from using legal entities to hide illicit funds behind anonymous shell companies or other opaque corporate structures. By reporting BOI to FinCEN, law enforcement, financial institutions and other authorized users — which FinCEN will define in a future rule — will have timely access to information to help combat corruption, money laundering, terrorist financing, tax fraud and other illicit activity.

The proposed rule describes who must file a BOI report, what information must be reported and when a report is due. Specifically, the proposed rule would require reporting companies to file reports that identify (1) the beneficial owners of the entity and (2) individuals who have filed an application with specified governmental or tribal authorities to form the entity or register it to do business.

While unclear when final regulations will be issued, because reporting requirements will begin soon after they become effective, companies should begin compiling necessary data.

Key takeaways

• The BOI reporting targets small companies and businesses. Many private U.S. companies where someone has 25% control will have to report. Namely, those with 20 or fewer full-time employees, less than $5 million in gross receipts and an operating presence in the U.S. Inactive entities seem to be excluded.
  The $5 million gross receipts threshold, as reported on the federal income tax return, is aggregated with other entities owned by the entity in question as well as other entities through which the entity operates.
• A BOI report is due within one year after the effective date of the final regulations for existing entities and 14 days of formation or registration with a state or tribal authority for entities formed after the effective date of the final regulations. To date, final regulations have not been issued.
• The proposed rule identifies two types of reporting companies: domestic and foreign.
  A domestic reporting company