On April 18, the Financial Crimes Enforcement Network (FinCEN) issued 16 new FAQs and updated 2 more. These FAQs provide additional guidance and information related to the BOI Reporting. The following are a few important clarifications that FinCEN provided in these new FAQs:
- Entities that are treated as S Corporations for U.S. federal income tax purposes is a type of company that must comply with the BOI reporting unless it meets one of the exemptions from reporting.
- Certain associations such as Homeowners association (HOAs) may be operating under a legal entity and in those situations can be considered a reporting company subject to BOI reporting. These associations may meet an exemption from reporting if they are designated as a Internal Revenue Code Section 501(c)(4) social welfare or other similar exemption (consult an attorney if this applies to your association). If an association is a reporting company that doesn’t meet an exemption, then they must disclose who their beneficial owner is. In many situations there will not be a 25% owner in these associations but rather a individual that makes important decisions and in those cases those decision makers are the beneficial owner and to be named in a BOI filing.
- Many reporting companies are owned by trusts. The beneficial owner to be named when a trust owns a company is the individual(s) that own 25% or exercise control. Trust arrangements vary and particular facts and circumstances determine whether specific trustees, beneficiaries, grantors, settlors, and other individuals with roles in a particular trust are beneficial owners of a reporting company whose ownership interests are held through that trust. For instance, the trustee of a trust may be a beneficial owner of a reporting company either by exercising substantial control over the reporting company, or by owning or controlling at least 25 percent of the ownership interests in that company through a trust or similar arrangement. Certain beneficiaries and grantors or settlors may also own or control ownership interests in a reporting company through a trust. The following conditions indicate that an individual owns or controls ownership interests in a reporting company through a trust:
- a trustee (or any other individual) has the authority to dispose of trust assets.
- a beneficiary is the sole permissible recipient of income and principal from the trust, or has the right to demand a distribution of or withdraw substantially all of the assets from the trust; or
- a grantor or settlor has the right to revoke the trust or otherwise withdraw the assets of the trust.
- This may not be an exhaustive list of the conditions under which an individual owns or controls ownership interests in a reporting company through a trust. Because facts and circumstances vary, there may be other arrangements under which individuals associated with a trust may be beneficial owners of any reporting company in which that trust holds interests.
- If a reporting company does not have a principal place of business in the United States, then the company must report to FinCEN as its address the primary location in the United States where it conducts business. If a reporting company has no principal place of business in the United States and conducts business at more than one location within the United States, then the reporting company may report as its primary location the address of any of those locations where the reporting company receives important correspondence. If a reporting company has no principal place of business in the United States and does not conduct business functions at any location in the United States, then its primary location is the address in the United States of the person that the reporting company, under State or other applicable law, has designated to accept service of legal process on its behalf. In some jurisdictions, this person is referred to as the reporting company’s registered agent, or the address is referred to as the registered office. Such a reporting company should report this address to FinCEN as its address.
- A person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. However, this civil penalty amount is adjusted annually for inflation and now at the time of this blog post is $591 per day. A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.