One of the main take-aways is that FinCEN does not expect to provide access to CTA BOI to financial institutions (“FIs”) until 2025.  In the interim, FinCEN will issue the long-awaited proposed regulations seeking to align the CTA with the Customer Due Diligence (“CDD”) Rule already applicable to certain FIs, including banks, which requires FIs to obtain BOI from covered entity customers opening accounts.  This delay is likely very frustrating for FIs seeking to comply with the CTA and adjust their existing systems for complying with the CDD Rule.

Initial Reports

The FAQs address initial filing requirements for companies created or registered before January 1, 2024 that will lose their exempt status between January 1, 2024 and January 1, 2025. The BOI Rule requires any company that loses its exempt status to file a BOI report within 30 calendar days of losing the exempt status. The BOI Rule also allows any reporting company created or registered before January 1, 2024 to file an initial report before January 1, 2025.

The new FAQs clarify that reporting companies that were created or registered before January 1, 2024 and that lose their exempt status prior to January 1, 2025 have the longer of the following timeframes in which to file an initial report: (1) the remaining days left in the one-year filing period for existing companies (i.e., January 1, 2025); or (2) the 30-calendar day period for companies that lose their exempt status.

The FAQs provide the following example:

If an existing reporting company ceases to be exempt on February 1, 2024, the company will have until January 1, 2025, to file its initial BOI report. If the company ceases to be exempt on December 15, 2024, the company will have until January 14, 2025, to file its initial BOI report.

This clarification may assist existing companies that lose their exempt status in late December 2024 from scrambling to file their initial report by January 1, 2025.

Reporting Companies

Additional FAQs address whether reporting requirements apply to S-corporations and homeowners associations (“HOA”). The FAQs clarify that depending on the HOA’s corporate structure and whether it qualifies for certain exemptions, it may be a reporting company. As an example, the FAQs provide that an incorporated HOA that is designated as a Section 501(c)(4) social welfare organization would not be a reporting company.

The FAQs also clarify whether domestic corporations or limited liability companies (“LLCs”) that are not created by the filing of a document with a secretary of state are reporting companies. FinCEN clarifies that the definition of a reporting company includes corporations and LLCs, based on the understanding that both are generally created by the filing of a document with the secretary of state or similar office. The FAQs indicate that in unusual circumstances where a domestic corporation or LLC is created, but not by the filing of a document with the secretary of state or similar office, the entity is not a reporting company.

Reporting Company Exemptions

A new FAQ clarifies the application of the large reporting company exemption when the size of the reporting company fluctuates. The BOI Rule provides an exemption for large operating companies that have more than 20 full-time employees in the United States, have filed a Federal income tax or information return in the United States in the previous year demonstrating more than $5,000,000 in gross receipts or sales, and have an operating presence at a physical office in the United States.  FinCEN has clarified that a large operating company still must file a BOI report where the size of the reporting company fluctuates above and below the exemption threshold within the reporting period.

Beneficial Owners

Several FAQs address beneficial owners under certain circumstances, including the beneficial owner of an HOA. A beneficial owner of an HOA is any individual who directly or indirectly exercises substantial control over a reporting company, or owns or controls at least 25% of the ownership interests of a reporting company. At least one individual must meet one of the following criteria to exercise “substantial control” over the HOA:

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

The FAQs reiterate who qualifies as a beneficial owner when a trust owns a reporting company. One new FAQ addresses when to report a corporate trustee as a beneficial owner. The FAQs indicate that the reporting company should determine whether any of the corporate trustees’ individual beneficial owners directly own or control at least 25% of the ownership interests of the reporting company through their ownership interests in the corporate trustee. The FAQs also indicate that the reporting company may, but is not required to, report the name of the corporate trustee in lieu of the individual beneficial owners only if all of the following three conditions are met:

• The corporate trustee is an entity that is exempt from the reporting requirements;
• The individual beneficial owner owns or controls at least 25% of ownership interests in the reporting company only by virtue of ownership interests in the corporate trustee; and
• The individual beneficial owner does not exercise substantial control over the reporting company. 

Accessing the BOI System

FinCEN has added a new FAQ section (i.e., Section O of the FAQs) devoted entirely to the accessing the BOI system and the associated regulations (the “Access Rule”). FinCEN finalized the Access Rule late last year, which we blogged about here.

The FAQs separately address each type of authorized recipient (i.e., federal agencies, state agencies, foreign governments) that may request BOI and the preparations these recipients can take to receive, store, and use BOI. According to the FAQs, access for FIs subject to the CDD Rule is not projected until Spring 2025. Similarly, FinCEN expects FI supervisory agencies to have access to the BOI system at that time. FinCEN indicates that once FIs and the banking regulators obtain access, the agency will provide additional guidance regarding supervisory expectations. See FAQ O.6.

The FAQs shed more light on the timing of FinCEN’s phased approach regarding access. According to the FAQs, FinCEN plans on taking the following phased approach:

• The first phase, expected to begin in the spring of 2024, will be a pilot program for a handful of Federal agency users.
• The second phase, expected in the summer of 2024, will extend access to Treasury offices and other Federal agencies engaged in law enforcement and national security activities that already have memoranda of understanding for access to Bank Secrecy Act information.
• The third phase, expected in the fall of 2024, will extend access to additional Federal agencies engaged in law enforcement, national security, and intelligence activities, as well as to State, local, and Tribal law enforcement partners.
• The fourth phase, expected in the winter of 2024, will extend access to intermediary Federal agencies in connection with foreign government requests.
• The fifth phase, expected in the spring of 2025, will extend access to FIs subject to CDD requirements under applicable law and their regulatory supervisors.

Penalties

An updated FAQ addresses penalties, which, as adjusted for inflation, are now $591 for each non-willful violation. Any person who willfully violates the BOI Rule may be subject to criminal penalties of up to two years imprisonment and a fine of up to $250,000. A willful violation may include willfully failing to file a BOI report, willfully filing false BOI, or willfully failing to correct or update previously reported BOI.

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