What is the Reporting Rule?

The Financial Crimes Enforcement Network (FinCEN), part of the U.S. Treasury, issued The Reporting Rule on September 30, 2022, implementing Section 6403 of the Corporate Transparency Act. The Reporting Rule requires certain entities to file beneficial ownership information (BOI) reports to FinCEN, while also providing for a number of exemptions. This article will help navigate the process of determining whether your organization needs to file a report, the necessary information to include in the report if you are so required, and also how to determine if your organization qualifies for an exemption from the filing requirements.

Who Needs to Report?

So who needs to report? Companies are required to report only if they meet the Reporting Rule’s definition of a reporting company and do not qualify for an exemption. Domestic reporting companies include corporations, Limited Liability Companies (LLC), and any other entity created by the filing of a document with a secretary of state or similar office or Indian tribe. Foreign reporting companies also must file and include corporations, LLCs, or other entities formed under the law of a foreign country that are registered to do business in any state or tribal jurisdiction. Even if your organization qualifies as a reporting company, you will not need to report if your organization qualifies for an exemption.

A few of the categories of organizations defined by The Reporting Rule as exempt are as follows:

• a governmental authority
• banks
• money services businesses
• brokers or dealers in securities
• state-licensed insurance producers
• accounting firms
• public utilities
• tax-exempt entities
• large operating companies

If you are not sure if your organization meets the criteria for any of these exemptions, definitions for each are provided on the FinCen website. Other exemption categories can be found here.

Large Company Exemptions

The most commonly used exemption tends to be the large company exemption. To meet the definition of large operating company, your organization must satisfy three criteria:

• employ more than 20 full time employees in the United States
• have an operating presence at a physical office within the United States, and
• filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales

If your organization cannot meet any one of the three criteria, it will not qualify for the large operating company exemption.

Beneficial Owners

If you do not meet any of the exemption qualifications, your next step is to identify your organization’s beneficial owners. A beneficial owner is any individual who, directly or indirectly:

• exercises substantial control over a reporting company or
• owns or controls at least 25 percent of the ownership interests of a reporting company

An individual might be a beneficial owner through substantial control, ownership interests, or both. An individual exercises substantial control over a reporting company if the individual meets any of four general criteria:

• the individual is a senior officer
• the individual has authority to appoint or remove certain officers or a majority of directors of the reporting company
• the individual is an important decision-maker or
• the individual has any other form of substantial control over the reporting company

Time to Report!

Now that you have identified the beneficial owners, it is time to report. Reports are filed electronically through FinCen’s website here, and the following information is collected:

• the reporting company’s legal name, any trade, doing business as, or trading as names
• the current street address of its U.S. place of business, jurisdiction of formation or registration
• and IRS taxpayer identification number

In addition, for each individual who is a beneficial owner or company applicant, the reporting company must report:

• the individual’s name
• date of birth
• address
• unique identifying number from an acceptable identification document (e.g., driver’s license, passport, etc.), and the name of the state or jurisdiction that issued the identification document

Lastly, you need to know when to file. Reporting companies created or registered to do business before January 1, 2024, must file initial BOI reports with FinCEN on or before January 1, 2025.

Reporting companies created or registered to do business on or after January 1, 2024 and before January 1, 2025, will have 90 days from creation or registration to file their initial BOI reports. Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN. No matter your deadline, it is best to get ahead of it and file your report as soon as practical, and it is advised you should do so before the end of the year.

In summary, while there seems to be a lot to digest regarding The Reporting Rule, determining your organization’s obligations can be a relatively straight-forward process if you follow the step-by-step guidance provided here. First, analyze whether your organization is a reporting company. Next, determine whether any exemptions exist. Finally, if your analysis concludes that your organization is a reporting company, simply visit the FinCEN website and provide the pertinent information requested as soon as practical. After your initial report, the hard part is done!

Please note that Taylor Nelson PL is not providing any tax advice with this article and encourages you to discuss with your tax advisor if you have any questions.