TAX LAW SPECIAL REPORT
So Where Are We on the Required Reporting of Beneficial Ownership Information to FinCEN?

By Nathan Hannah

Domestic reporting companies and their owners are not, for now, required to report their beneficial ownership information (BOI) to The Financial Crimes Enforcement Network (FinCEN).

FinCEN issued a statement on February 27 that said “it will not issue fines or penalties or take any other enforcement actions based on any failure to file or update beneficial ownership information reports under the Corporate Transparency Act.”

The U.S. Department of the Treasury then issued a press release on March 2 that says “not only will it not enforce any penalties or fines associated with the beneficial ownership information reporting rule… but it will further not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect….”That press release also says that the Treasury will be issuing proposed rules that “will narrow the scope of the [reporting] rule to foreign reporting companies only.”

So, the Secretary of the Treasury, who is the boss of FinCEN, said that if you are a domestic company, you don’t have to report your beneficial ownership information to them.

Then, in a press release issued on March 21, FinCEN announced that it is issuing an interim final rule that removes the requirement for U.S. companies and U.S. persons to report beneficial ownership information to FinCEN.

That explanation appears to address the concern I have heard among some commentators that FinCEN’s action may be inconsistent with the legislation (the Corporate Transparency Act) adopted by Congress. When I commented on this in an April 16 post on my blog (https://nathanhannah.com/blog) I said that I had not gone back and re-read that legislation, but if FinCEN’s statement can be taken at face value, it plainly should have the authority to change its own regulations implementing the legislation.

Well, I have now gone to the source and read the legislation. Here is the guts of it:

“In accordance with regulations prescribed by the Secretary of the Treasury, any reporting company that has been formed or registered before the effective date of the regulations prescribed under this subsection shall, in a timely manner, and not later than 2 years after the effective date of the regulations prescribed under this subsection, submit to FinCEN a report that contains the information described in paragraph (2).”

And here is what “paragraph (2)” says:

“In accordance with regulations prescribed by the Secretary of the Treasury, a report delivered under paragraph (1) shall… identify each beneficial owner of the applicable reporting company and each applicant with respect to that reporting company by—

(i) full legal name;

(ii) date of birth;

(iii) current, as of the date on which the report is delivered, residential or business street address; and

(iv) (I) unique identifying number from an acceptable identification document; or (II) FinCEN identifier….”

And the all-important definition of what is a “reporting company”:

“The term ‘reporting company’—

(A) means a corporation, limited liability company, or other similar entity that is—

(i) created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe; or

(ii) formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or a similar office under the laws of a State or Indian Tribe….”

That’s all quoted from Title 31, section 5336 of the US Code.

It seems clear that what FinCEN’s March 21 press release means is that the Department of the Treasury is going to issue a new regulation that narrows the definition of “reporting company” so that it won’t include any “corporation, limited liability company, or other similar entity that is created by the filing of a document with… a state or Indian tribe.” Can they do that? Well, the legislation does say that the reporting shall be done “in accordance with regulations prescribed by the Secretary of the Treasury.” So there is at least some support for the approach that the Department of the Treasury is taking.

Another relevant consideration here is the enforcement of the legislation. Even if the Department of the Treasury is narrowing the reach of the legislation too much, i.e. making the reporting requirement narrower than Congress wanted, it’s not clear that anything will happen to undo the Treasury’s action. A court order seems unlikely because there would have to be a lawsuit filed by someone who can show they are being harmed by the Treasury’s approach. The other possibility is that Congress will amend the legislation to take away the Treasury’s authority to issue implementing regulations, but that’s not likely to happen either.

So, at least for now, it looks like the pressure is off for reporting the beneficial ownership information for your domestic company. The Secretary of the Treasury says you don’t have to report that information to FinCEN for a domestic company, and he has the final say unless Congress does something. The situation could change, if either Congress amends the Corporate Transparency Act, or the Department of the Treasury issues regulations that are different from the content of their last press release. If one of those things happens, we can only hope that it will be widely announced well in advance of any new due date for the reporting. Stay tuned.