Beneficial Ownership Information - FinCEN Reporting Halted?

Navigating the labyrinth of regulatory compliance is a familiar challenge for small businesses. The Corporate Transparency Act (CTA), with its Beneficial Ownership Information (BOI) reporting requirements, has added a new layer of complexity. One critical aspect is the Beneficial Ownership Information Report (BOIR), mandated by the U.S. Department of Treasury, which outlines the requirements for filing and the impact of recent legal developments on reporting obligations. Recent legal developments have further muddied the waters, leaving many business owners scratching their heads. This article aims to clarify the current state of BOI reporting requirements and provide guidance on how small businesses can stay compliant amidst the shifting landscape.

The Corporate Transparency Act: A Brief Overview

Enacted as part of the Anti-Money Laundering Act of 2020, the CTA aims to enhance transparency in corporate ownership to combat financial crimes such as money laundering, tax evasion, and terrorism financing. The act requires certain U.S.-based corporations, limited liability companies (LLCs), and similar entities to file BOI reports with the Financial Crimes Enforcement Network (FinCEN). These reports must include the names, dates of birth, addresses, and identifying numbers of individuals who own or control 25% or more of a company. Reporting beneficial ownership information is crucial, and compliance is mandatory to avoid severe consequences. Non-compliance carries significant penalties, including fines up to $10,000 and imprisonment of up to two years. Additionally, failing to adhere to boi reporting obligations can result in substantial financial and criminal repercussions.

What is Beneficial Ownership Information?

Beneficial Ownership Information (BOI) means to identify those who directly or indirectly own or control a company. This information is crucial in understanding who you are doing business with and helps establish trust with legitimate businesses and business owners. BOI contributes to understanding risk exposure in relation to higher-risk jurisdictions, sanctioned individuals, or politically exposed persons. It can also help reveal when an entity sits outside risk-tolerance, so the relationship can be ended.

Who Is a Beneficial Owner?

A beneficial owner is someone who directly or indirectly owns (or controls) at least 25% of a company’s interest or has a substantial level of control over the company’s operations. This includes individuals who have the power to direct or influence the company’s decision-making processes, such as senior officers or those with significant interests in parent or subsidiary companies.

It is important to report the company's beneficial ownership information to FinCEN as required by the U.S. Department of the Treasury, with certain corporations and limited liability companies needing to submit this information by January 1, 2024.

Which Companies Are Required to Report?

The CTA mandates that most existing U.S. businesses and foreign businesses registered to operate in the U.S. disclose their beneficial ownership information as a reporting company. This includes corporations, LLCs, and other entities required to file articles of incorporation or equivalent documents with the state in which they are registered. Reporting companies created after the enactment of the CTA must comply with specific timelines for filing beneficial ownership reports based on their formation date. However, there are 23 categories of exempt entities, including banks, credit unions, insurance companies, government agencies, and publicly traded companies.

Who is Considered to Have Substantial Control?

According to FinCEN, an individual is considered to have substantial control over a company if they directly or indirectly own 25% or more of the company, have the power to direct or cause the direction of the company’s management and policies, or have the ability to exercise substantial influence over the company’s operations or decisions. This definition is crucial in identifying beneficial owners who must be reported to FinCEN.

Reporting Requirements to Report Beneficial Ownership Information

Reporting companies must file beneficial ownership information, providing basic details about themselves and their beneficial owners. This includes the company’s legal name, trade names, address, jurisdiction of registration, and taxpayer identification number. For beneficial owners, required information includes their name, date of birth, residential address, and an identifying number from an official identification document. Companies are required to submit ownership information to FinCEN electronically through FinCEN’s BOI E-Filing system. BOI reports must be filed electronically through FinCEN’s BOI E-Filing system.

Access to Beneficial Ownership Information

Authorized entities, including federal, state, local, and tribal officials, as well as certain foreign officials, may access beneficial ownership information. Financial institutions may also gain access under specific circumstances, with consent from reporting companies. However, the data submitted to FinCEN will not be openly available to the public, and therefore its use in due diligence, compliance, and risk management processes is limited.

The Legal Rollercoaster: Timeline of Events

The implementation of the CTA’s BOI reporting requirements has been anything but smooth. The deadlines for initial BOI reports, mandated by the U.S. Department of Treasury, vary based on the company's registration date, and recent legal changes have significant implications for these reporting requirements. A series of legal challenges and court rulings have created a tumultuous environment for businesses trying to comply. Below is a timeline highlighting key events:

• December 3, 2024: The Eastern District of Texas U.S. District Court issued a nationwide injunction preventing enforcement of the CTA, suspending all reporting obligations under the act.

• December 23, 2024: The U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court injunction, temporarily restoring initial reporting deadlines for reporting companies.

• December 26, 2024: The Fifth Circuit vacated the stay issued by its motions panel, restoring the district court’s injunction and suspending reporting obligations under the CTA pending resolution of the appeal.

• December 31, 2024: The Department of Justice filed an application for a stay with the U.S. Supreme Court, requesting that the December 3 injunction be stayed or narrowed while the case proceeds through the Fifth Circuit.

• January 7, 2025: The U.S. District Court for the Northern District of Texas issued a second nationwide injunction enjoining enforcement of the CTA, suspending all reporting obligations under the act.

• January 23, 2025: The U.S. Supreme Court granted a stay of the December 3 injunction pending the disposition of the appeal before the Fifth Circuit and the disposition of a petition for a writ of certiorari and related final judgment.

• February 18, 2025: The U.S. District Court for the Eastern District of Texas agreed to stay its January 7, 2025, order until the appeal is completed, effectively reinstating the BOI reporting requirements.

• March 2, 2025: The U.S. Treasury Department has stated that they will not enforce the CTA BOI reporting requirements. This means, as of now, companies DO NOT need to submit reports to FinCEN. This is a direct statement from the U.S. Treasury Department: https://home.treasury.gov/news/press-releases/sb0038 

These rapid developments have left many businesses uncertain about their reporting obligations and deadlines.

The New Deadline: March 21, 2025 Halted 

In response to the latest court ruling, FinCEN issued a notice on February 18, 2025, updating the BOI report filing deadlines. Compliance deadlines are determined based on the actual or public notice of a company's creation or registration, which is crucial for meeting legal requirements. For the majority of companies, the new deadline was set to be March 21, 2025. 

HOWEVER, with the statement made by the U.S. Treasure Department that they will not enforce or impose any fines released to domestic entities (read the press release here: https://home.treasury.gov/news/press-releases/sb0038) companies are NOT REQUIRED to report.

With that said, it's important to continue to follow the FinCEN website (www.FinCen.gov/BOI) for the latest updates, and consult with your legal counsel regarding your specific requirements.

Potential Modifications to Reporting Requirements

FinCEN has acknowledged the challenges faced by small businesses in complying with the BOI reporting requirements. FinCEN stated (in it's February 18th notice) that it intends to revise the BOI reporting rule to reduce the burden for lower-risk entities, including many U.S. small businesses. This indicates a potential shift towards more tailored reporting obligations that consider the varying risk profiles of different entities. 

It's currently unclear exactly what this will mean in the wake of the statement by the U.S. Treasure Department, and it's likely that there will be considerably more court cases and perhaps even congressional review before the final requirements of the BOI are fully settled.

Compliance Steps for Small Businesses

Given the current state of affairs, small businesses should continue to monitor the progress of the BOI reporting requirements and work with their legal counsel to ensure they are meeting all appropriate requirements. However, as of now, reporting does not seem to be required.

Conclusion: Stay Proactive, Stay Compliant

The Corporate Transparency Act’s BOI reporting requirements have been anything but straightforward, with legal battles and shifting deadlines creating confusion for businesses. However, with the current statements by the U.S. Treasury Department itself, reporting is not required..

For small businesses, the key to compliance is proactive preparation. Understanding whether your company is required to report, gathering the necessary information, and filing on time are essential steps to avoid penalties. And with FinCEN considering modifications to reduce the compliance burden for small businesses, there may be additional changes on the horizon.

Navigating regulatory changes can be daunting, but staying informed and acting early can save businesses from legal headaches down the road. If you’re unsure about your obligations, seeking legal or compliance guidance is a wise move. With the right approach, businesses can meet their reporting requirements smoothly and focus on what matters most—growth and success. Additionally, companies must report beneficial ownership information to avoid penalties and ensure compliance with the latest regulations.