Beneficial Ownership Reporting: FinCEN Exempts Most US Businesses
After more than a year of contention, ongoing federal court actions, and countless hours of data gathering and reporting by US businesses, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has changed course and has now exempted most US companies from its controversial Beneficial Ownership Information (BOI) Reporting Rule.
The BOI rule itself is still in effect, but FinCEN’s change in direction effectively relieves tens of millions of US businesses from its reporting requirements and ends the uncertainty regarding compliance with the BOI reporting rules.
How Things Started
The BOI Reporting Rule originally came about as a result of the Corporate Transparency Act (CTA), which Congress passed in 2021. The goal was to help law enforcement agencies identify criminals who use anonymous shell companies to facilitate tax fraud, terrorism financing, money laundering, and other financial crimes.
Companies subject to the rule were required to file an online report with FinCEN identifying all individuals who have at least 25 percent ownership of the business or who have “substantial control,” such as company officers and executives, general counsel, and other decision-makers. They were required to report each beneficial owner’s full legal name, date of birth, and address and submit a copy of each individual’s driver’s license, passport, or other approved identification.
The rule applied to corporations (both regular and S-corporations), LLCs, partnerships, certain trusts, and other businesses that were created by filing a document with the secretary of state or comparable office in any US state, territory, or tribal government. The rule also applied to foreign-based businesses that registered with a secretary of state’s office. It went into effect on Jan. 1, 2024, but existing companies were given until Jan. 1, 2025, to submit their initial reports.
Many types of businesses were exempted from the rule. These included publicly traded companies, companies that were already operating under extensive regulatory oversight (such as financial institutions and insurance companies), and “large operating companies” with more than 20 full-time employees and $5 million in US sales.
Growing Controversy
As a result of the various exemptions, most of the compliance burden fell on smaller corporations, LLCs, and state-registered partnerships—an estimated 33 million businesses nationwide. That disparity led the National Small Business Association (NSBA) to file suit as the law may unfairly burdened smaller businesses and could cause them to incur significant compliance costs. For example, the seemingly straightforward 25 percent ownership threshold could be difficult to determine in companies with multiple levels of ownership, several classes of stock, transferable shares, options, or other owner privileges and interests.
In March 2024, a US District Court judge agreed with the NSBA, finding the CTA itself unconstitutional and prohibiting FinCEN from enforcing the BOI rule. This judge’s ruling applied only to businesses that were already members of the NSBA at the time. Additional lawsuits were filed and judges granted nationwide injunctions on enforcement of the rule. The Treasury Department filed appeals in these cases so injunctions were lifted and later reinstated, leaving millions of US businesses uncertain about their compliance requirements.
What Has Changed Now
That uncertainty has now effectively ended. After the change in presidential administrations in January, agencies were directed to minimize regulatory burdens, especially on small-to-medium sized businesses. On March 2, the Treasury Department announced that FinCEN would not move forward with enforcement of the BOI reporting requirements and would soon issue a new “interim final rule” that would significantly alter the requirements.
That new rule, officially published on March 26, ended the BOI reporting requirement for all domestic companies. Although the CTA is still law, FinCEN revised the definition of a “reporting company” to include only those companies that were formed under the law of a foreign country and registered to do business in a US state or tribal jurisdiction. Entities created in the United States are now exempt from the BOI reporting requirement.
Furthermore, while foreign reporting companies must still file BOI reports, they are not required to report any US persons (Who Is A United States Person?) who are beneficial owners, and US persons are not required to report their ownership information in any such entities. Existing foreign companies subject to the rule must file their initial BOI reports within 30 calendar days of the interim final rule’s publication, so these reports are due April 25. Foreign entities registered after March 26 must file within 30 days of their registration becoming effective with the relevant state or tribal jurisdiction.
You can learn more about the current status of BOI reporting requirements on the FinCEN website.
Although the interim final rule went into effect on March 25, FinCEN is accepting comments and will not completely finalize it until later this year. Further significant changes appear unlikely at this point, but the pending legal challenges to the CTA which were filed earlier could still change things. For now, BOI reporting applies only to certain foreign entities operating in the US.
Please contact us if you have questions about your BOI filing requirement.
