FinCEN Beneficial Ownership Reporting Guidance
In late September, Treasury issued its Small Entity Compliance Guide through its Financial Crimes Enforcement Network, a document that is 50 pages in length and sets forth detailed guidance about the new FinCEN "beneficial ownership" reporting requirements. And on September 27th, Treasury issued proposed regulations that delay required reporting for "reporting companies" that are formed on or after January 1, 2024, and before January 1, 2025, from 30 days after formation to 90 days after formation. A reporting company in existence prior to January 1, 2024, is not subject to the reporting requirements until the end of 2024. (Note that no reports will be accepted prior to January 1, 2024, and forms have yet to be published for purposes of reporting.)
There is a long list of “narrow” exceptions to the reporting requirement that generally relate to entities for which the government already has information as to beneficial ownership, such as a “securities reporting issuer,” an “insurance company,” a “broker or dealer in securities,” etc. So what is a reporting company? Generally, subject to the above exceptions, it is (1) a newly formed corporation, LLC or partnership created by filing a document with a secretary of state or other similar office, or (2)(i) an existing “small business” that employs 20 or fewer persons or has reported gross receipts or sales of $5,000,000 or less on its prior year’s federal income tax return, and is (ii) a corporation, LLC or partnership created by filing a document with a secretary of state or similar office. (There also are filing requirements for certain “foreign companies.”) Essentially, the reporting requirements entail disclosure of any person who exercises “substantial control” over a reporting company or who owns or controls at least 25% of the ownership interests of a reporting company.
There is a lot here to digest, and accounting and law firms need to address how they are going to assist clients in meeting the filing requirements, as there are substantial penalties for non-compliance. (Compliance should be relatively easy when forming a new entity on or after January 1, 2024.) While professionals may not have a legal responsibility to advise clients of these new disclosure requirements, good practice will be to try to identify those clients who are so subject. How to do so likely will involve significant thought, as this identification may not be easy. There have been a few webinars on how to comply, but, with this new guidance having just been issued, expect that there will be many such webinars and articles in the near future.