FinCEN "elucidates" reporting on Beneficial Ownership.

Financial Crimes Enforcement Network (FinCEN) Reporting

The mandated filing requirement, as directed by Congress, for entities obligated to report to the Financial Crimes Enforcement Network (FinCEN) or risk facing significant non-waivable fines, remains increasingly perplexing. FinCEN has issued "clarifying" information.

Entities subject to this filing requirement include newly established corporations, limited liability companies (LLCs), limited partnerships, and other entities submitting formation documents to their respective Secretary of State (or equivalent agency). They are now obligated to file with the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN), providing specific information regarding the entity's "beneficial owners." Failure to comply incurs a daily civil penalty of $500 with no maximum limit. Additionally, there's a criminal penalty of up to $10,000 and/or imprisonment for up to two years. These penalties can be enforced on both the entity itself and each individual involved, particularly targeting senior officers or managers.

Reporting obligations apply to all businesses except those explicitly exempted, notably entities classified as "large companies" with over 20 full-time employees or those filing a U.S. tax return with gross receipts exceeding $5 million. Essentially, the current administration is focusing on small businesses with fewer than 20 employees and annual revenues below $5 million, imposing a significant financial burden on Main Street America.

It's crucial to note that this reporting requirement was implemented by the Biden Administration through the Financial Crimes Enforcement division of the US Treasury, effectively categorizing all small businesses as potential criminal enterprises.

Beneficial owners are broadly defined, encompassing individuals who directly or indirectly hold ownership, exert control, or provide management services, even if they lack a financial interest in the entity. This includes senior officers and individuals involved in significant decision-making, such as board members.

The recent directives issued by FinCEN regarding Beneficial Ownership Information (BOI) reporting requirements are somewhat bewildering. While many of the updated FAQs offer minimal new information or assistance and are applicable to only a few businesses, two clarifications stand out:

• Homeowners associations (HOAs) may or may not be considered reporting companies for BOI reporting purposes, depending on whether they are created by filing a document with the Secretary of State or a similar office. HOAs designated as IRC §501(c)(4) social welfare organizations are exempt, while those not designated as such must file a BOI report unless exempted otherwise.
• An organization established in 2024 that is initially exempt from BOI reporting requirements but loses its exemption before January 1, 2025, has until either January 1, 2025, or 30 calendar days from the date of exemption loss to file its BOI report.

Unfortunately, FinCEN did not address one of the most frequently asked questions: whether an entity established before 2024 that dissolves before January 1, 2025, is required to file a report by that date. While Spidell suggests the answer is no, definitive guidance from FinCEN on this matter is awaited.

In cases of uncertainty, one may choose to file to avoid potential penalties.