Matter & Substance
  August 10, 2023

Are You Required to Report Under FinCEN’s New Ruling?

In September of 2022, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a new beneficial owner reporting requirement for certain U.S. entities in an effort to clamp down on illicit finance and money laundering, pursuant to Congress’ Corporate Transparency Act. The rule will require most U.S. corporations, limited liability companies, and other entities created in or registered to do business in the U.S. to report information about their beneficial owners—the persons who ultimately own or control the company—to FinCEN.

Understanding the ruling

The new rule will go into effect on January 1, 2024. Companies that exist before that date will have one year to submit their first report (by January 1, 2025). Companies created or registered after January 1, 2024, will have 30 days to submit their first report after they are established. After submitting the initial report, all companies will have to update the information about their owners within 30 days of any changes.

Who is considered a “beneficial owner”?

In general, a beneficial owner is any individual (1) who directly or indirectly exercises “substantial control” over the reporting company, or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.

Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over, important decisions the reporting company makes. In this regard, any senior officer is deemed to have substantial control over a reporting company. The ownership interests can include simple things like regular shares of stock or more complicated arrangements. According to FinCEN, they expect the majority of companies to have straightforward ownership structures.

What companies will be required to report?

Certain companies—referred to as “reporting companies”—will be required to report their beneficial ownership information to FinCEN: domestic reporting companies and foreign reporting companies.

A domestic reporting company is defined as…

  • a corporation,
  • a limited liability company, or
  • any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

A foreign reporting company is any entity that is…

  • a corporation, limited liability company, or other entity formed under the law of a foreign country, AND
  • registered to do business in any U.S. state or in any Tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.

If you had to file a document with a state or Indian Tribal-level office to create your company or to register it to do business if it is a foreign company, then your company is most likely a reporting company, barring any applicable exemptions.

For the definitions of both domestic and foreign reporting companies, a “state” means any state of the U.S., the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, the U.S. Virgin Islands, and any other commonwealth, territory, or possession of the U.S.

What information will companies have to report?

A reporting company will have to report:

  • Its legal name;

  • Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;

  • The current street address of its principal place of business if that address is in the United States (for example, a domestic reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the U.S., the current address from which the company conducts business in the U.S. (for example, a foreign reporting company’s U.S. headquarters);

  • Its jurisdiction of formation or registration; and

  • Its Taxpayer Identification Number (“TIN”).

A reporting company will also have to indicate the type of filing it is making (that is, whether it is filing an initial report, a correction of a prior report, or an update to a prior report).

Although reporting will begin in January 2024, there is not yet a landing page on FinCEN’s website to do so. Once it is launched and operational, you will report your company’s beneficial ownership information electronically through a secure filing system available there.

We’re here to help

As with any new ruling, we encourage you to reach out to your tax advisor with any questions or concerns you may have, including exemptions and qualifications and overall international tax planning assistance.

The above communications are of a general nature and are not definitive advice. These communications do not establish or continue a client relationship with any person or party, and they do not constitute an undertaking on our part to monitor tax or other issues for you or for any other parties.