by FinCEN, we now know who must file a beneficial ownership report, what information must be reported, and when reports are due to be filed. FinCEN’s new rules, which will be codified at 31 CFR Part 1010, will become effective on January 1, 2024.What is and is not a “reportable company”?The Corporate Transparency Act defines a “reportable company” broadly as: “a corporation, limited liability company, or other similar entity that is – (i) created by the filing of a document with the secretary of state or 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….” Building upon this, the Final Rule further defines “reportable company” to include either a “domestic reporting company” or a “foreign reporting company.” Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498, 59593 (Sept. 30, 2022) (to be codified at 31 C.F.R. § 1010.380(c)(1)).A “domestic reporting company” means any entity that is “(A) a corporation; (B) a limited liability company; or (C) created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.” Id. (to be codified at 31 C.F.R. § 1010.380(c)(1)(i)).A “foreign reporting company” has been defined by rule to mean any entity that is: “(A) a corporation or limited liability company or other entity; (B) formed under the law of a foreign country; and (C) registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a State or Indian tribe.” Id. (to be codified at 31 C.F.R. § 1010.380(c)(1)(ii)).FinCEN expects that, under its broad definition, domestic and foreign reporting companies will include a variety of business entities beyond corporations and LLCs including limited liability partnerships, limited lia

hich would require FinCEN to establish programs and perform research related to financial technology on topics such as machine learning, data analytics, and cryptocurrency. The Federal Government is not unique in wanting more transparency with respect to beneficial owners of entities operating within its borders. Some states, and a number of non-US jurisdictions such as the United Kingdom, have or have proposed similar laws requiring more corporate transparency. K&L Gates has lawyers who can advise with respect to these compliance issues. This alert is the first in an ongoing series. Stay tuned for continued content.1 Pub. L. No. 116-283 (January 1, 2021) §6403; 31 USC §5336.2 Note, however, that the Treasury Department continues to issue clarifying guidance with respect to the implementation of certain matters contained in the CTA and regulations. Accordingly, certain points contained herein could be impacted by such guidance.3 Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498 (September 30, 2022).4 31 C.F.R. § 1010.380(a)(1)(iii). 5 For the “large operating company” exemption, an entity that is part of an affiliated group of corporations within the meaning of IRC Sec. 1504 that filed a consolidated return with more than US$5 million in gross receipts or sales meets the monetary requirement. 31 U.S.C. § 5336(a)(11)(B)(xxii); 31 C.F.R. § 1010.380(c)(2)(xxii).6 An “inactive entity” is defined as an entity in existence before 1 January 2020, is not engaged in active business, is not, directly or indirectly, or wholly or partially, owned by a foreign person, has not experienced a change in ownership in the prior 12-months, has not sent or received funds in an amount greater than US$1,000 in the preceding 12 months, and does not hold any assets. 31 U.S.C. § 5336(a)(11)(B)(xxiii); 31 C.F.R. § 7 31 U.S.C. § 5336(a)(3) (emphasis added).8 31 C.F.R. § 1010.380(d)(1)(i)(A); 31 C.F.R. § 1010.380(f)(8).9 31 C.F.R. § 1010.380(d)(1)(i)(B).10 31 C.F.R. § 1010.380(d)(1)(i)(C).11 31 C.F.R. § 101

On September 29, 2022, the Financial Crimes Enforcement Network (“FinCEN”) issued a final rule (the “Rule”), the first of three planned rulemakings implementing the beneficial ownership information reporting rules of the Corporate Transparency Act of 2021 (“CTA”). The Rule—located at 31 C.F.R. § 1010.380—details the required reporting by certain companies of information related to their beneficial owners and their company applicants. The CTA and the Rule aim to help national security, intelligence, and law enforcement agencies prevent “drug traffickers, fraudsters, corrupt actors such as oligarchs, and proliferators from laundering or hiding money and other assets in the United States” from using shell and front companies. See 87 Fed. Reg. 59498, 59596.FinCEN drafted the Rule broadly and, when the reporting requirements take effect on January 1, 2024, they will reach a wide range of companies, with FinCEN estimating that 32.6 million legal entities will need to file reports under the new Rule. See 87 Fed. Reg. 59498, 59549.Who must report under the rule?The new Rule will affect both United States entities and foreign entities transacting business in the United States. Under the Rule, any United States entity created by the filing of a document with the secretary of state or similar office of any state or other governmental agency must report information on itself, its beneficial owners, and its company applicants. The same reporting is required for any foreign entity (an entity formed under the laws of a foreign country) that is registered to do business in the United States by the filing of a document with the secretary of state or similar office.While the Rule requires a broad range of companies to report, it also carves out 23 ex

6 customer due diligence rule in light of the BOI reporting requirements. FinCEN is also expected to solicit comments on the system and forms that will be used by reporting companies to submit BOI reports.____Beneficial Ownership Information Reporting Rule Fact Sheet | FinCEN.gov Beneficial Ownership Information Reporting Rule Fact Sheet, FinCEN.gov (Sept. 29, 2022), https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet (BOI Rule Fact Sheet). Congress passes the Anti-Money Laundering Act of 2020, amending and modernizing the Bank Secrecy Act - Eversheds Sutherland (eversheds-sutherland.com); Congress passes the Anti-Money Laundering Act of 2020, amending and modernizing the Bank Secrecy Act - Eversheds Sutherland (eversheds-sutherland.com). “William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021,” H.R. 6395available athttps://www.govtrack.us/congress/bills/116/hr6395/text. Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498 (Sept. 30, 2022), available at https://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements. The final rule will be codified at 31 C.F.R. § 1010.380.Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498 (Sept. 30, 2022), available athttps://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements. The final rule will be codified at 31 C.F.R. § 1010.380.31 USC § 5336. 31 U.S.C. § 5336(h)(1).31 U.S.C. § 5336(h)(3).BOI Rule Fact Sheet, supra note 1.[View source.]

ve determination letter. Therefore, since the newly formed entity is not yet considered a Section 501(c) entity until the issuance of the tax determination letter, the entity risks violating the CTA reporting requirements if it fails to timely file a BOI report.To avoid a possible violation, a newly formed entity awaiting their tax-exempt determination letter should file a BOI report within the 90-day (or 30-day) filing period. Once the determination letter is issued by the IRS, the newly formed Section 501(c) entity must then file another BOI report. An updated BOI report for a newly exempt entity will only require that the entity: (1) identify itself; and (2) check a box noting its newly exempt status.While this solution may be cumbersome, it aligns with FinCEN's discussion of the final BOI regulations prior to codification. In a 2022 report, FinCEN noted that many commenters had requested that the exemption rule apply to entities that were still awaiting an IRS determination letter (87 Fed. Reg. 59498 (Sep. 30, 2022) at 594541). While FinCEN acknowledged the request, the final promulgated rule did not include any concession to newly formed entities waiting for Form 1023 approval (C.F.R. § 1010.380(c)(2)(xix)). Therefore, in order to fully comply with the CTA as written, a newly formed tax-exempt entity should file a BOI report within 90 days of formation if they have not already received their official tax-exempt status from the IRS.Loss of Tax-Exempt Status or Change of ClassificationIf a tax-exempt entity, whether a charitable organization or otherwise, loses its tax-exempt status, the CTA has addressed the necessary steps the entity must take. The entity will have a 180-day grace period beginning on the date of the loss of their tax-exempt status (C.F.R. § 1010.380(c)(2)(xix)(A)). The CTA exemption expires at the end of the 180-day period, and the entity will then have 30 days to file a BOI report. If the entity regains its tax-exempt status during the 180-day period, the CTA exemption will rem

tter, notwithstanding a near certain expectation that its tax-exempt status (and, effectively, its CTA exemption) will be issued retroactively. A nonprofit organization can easily update its BOI report (asserting its exemption from further updates/CTA reporting) with FinCEN once it receives its determination letter.Furthermore, a tax-exempt organization that loses its exemption (e.g., its exemption was automatically revoked for its failure to file a Form 990, 990-EZ, or 990-N) and does not want to submit a BOI report must promptly submit the necessary documents (e.g., the missing returns and a Form 1023, 1023-EZ, 1024, or 1024-A) and restore its exemption within 210 days of losing the exemption or it will need to submit a BOI report.[] Alternatively, the now taxable nonprofit organization could dissolve within 210 days of losing the exemption, which would also eliminate the need to file a BOI report.[] You can apply for a FinCEN identifier through FinCEN’s web-based application.[] See 87 Fed. Reg. 59498 (September 30, 2022) at 59541. “[S]ome commenters asserted that the exemption should cover entities that applied to the IRS for tax-exempt status but were still awaiting a determination.” In adopting the final rules as for tax-exempt entities as proposed, FinCEN stated that it “believes the proposed rule, which is almost identical to the statutory language, sufficiently identifies the tax-exempt entities that are covered by the exemption. Additionally, FinCEN declines to adopt any additional exemptions at this time.” However, “FinCEN will continue to consider suggestions for additional exemptions, including those proposed by these commenters” (that is, including the proposal to provide an exemption for entities that have applied to the IRS for tax-exempt status but were still awaiting a determination).[] The exemption from filing a BOI report is lost on the 180th day after the exemption is revoked and the BOI report is due 30 days thereafter.

Beneficial Ownership Reporting Requirements, 87 FR 59498 (September 30, 2022)FinCEN additional information posted here. The Corporate Transparency Act (CTA) and its reporting requirements has now gone live as of the first of this year and applies to nearly all existing and future entities (corporations, partnership and limited liability entities). The CTA and its implementing rules issued by FinCEN require beneficial ownership and company applicant reporting for these entities unless the entity qualifies for one of the 23 exemptions. Failure to comply with the CTA reporting requirements (or qualify for an exemption) may result in significant civil or criminal penalties. The entity that is a reporting company has the burden of filing the report with FinCEN in all events, but the determination of who must be reported by the reporting company as beneficial owners takes an analysis of the pertinent documents and the law and rules and is said to be the practice of law.Information about the company applicant must be included in the reports filed by any reporting comp

s has contributed to the development of the CTA. Bad actors, ranging from corrupt officials, foreign terrorists and drug traffickers are able to easily exploit the business formation process to launder money and evade detection.[3] National Small Business United v. Janet Yellen, Case No. 5:22-cv-1448-LCB *1 (N.D. Ala. March 1, 2024) [Dkt. No. 51]. "Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle." Id.[4] Reporting companies must provide FinCEN with the beneficial owner's and applicant's full legal name, date of birth, current address, and identification number from a driver's license, ID card or passport. Id. § 5336(a)(1), (b)(2)(A). Accord 31 C.F.R. § 1010.380(b)(1)(ii)(E) (requiring the submission of an image identifying document).[5] SeeBeneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498, 59549 (Sept. 30, 2022) (to be codified at 31 C.F.R. pt. 1010).[6] See 31 U.S.C. § 5336(h)(1), (2) & (3).[7] National Small Business United v. Janet Yellen, Case No. 5:22-cv-1448-LCB *8 (N.D. Ala. March 1, 2024) [Dkt. No. 51].[8] Id. at *3.[9] Brief of Amici Curia Fact Coalition, Transparency International U.S., and Main Street Alliance, Case No. 5:22-cv-01448-LCB *23 [Dkt. No. 34].[10] Id.[11] Id.[12] Corporations, limited liability companies and other business associations are creatures of state law, not federal law. See Cort v. Ash, 422 U.S. 66, 84 (1975);CTS Corp. v. Dynamics Corp., 481 U.S. 69, 89 (1987). The district court observed that "'[n]o principle of corporation law and practice is more firmly established than a State's authority to regulate domestic corporations.'" National Small Business United v. Janet Yellen, Case No. 5:22-cv-1448-LCB *19 (N.D. Ala. March 1, 2024) (Memorandum Opinion) [Dkt. No. 51].[13] Id. at *19-20.[14] Id. at *32-33.[15] "Does Congress have authority under the Commerce Cla

rranty. Attorneys will need to assess the risk of each specific deal regarding the potential liability of seller non-compliance with the CTA and adjust the basket and cap for claims against the company for this violation. This will all depend on the deal specifics and negotiations between the parties given the information delivered during the due diligence process.The Global M&A market witnessed something similar during the 2020 global pandemic. With the inclusion of a “new” Global Pandemic Representation and Warranty, the R&W Insurance industry and lawyers had to assess new potential risks and help clients minimize potential claims. In the end, it will be interesting to see how this plays out. As always, buyers beware.Be sure to watch out for additional education and outreach regarding beneficial ownership reporting requirements, as FinCEN is expected to provide future resources, such as guidance, FAQs, and interpretive advice. Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59498 See Beneficial Ownership Information Reporting Requirements Final Rule, CFR 1010.380(a)(2), (Sept 30, 2022). See 31 CFR 1010.380(c)(2) for a full list of the 23 exemptions from the definition of “reporting company.” See my colleague, Ryan K.M. Taylor’s article “ New B.O.S.S., Same as the Old Boss? New Clarity on the Corporate Transparency Act, on DE Insights at New B.O.S.S., Same as the Old Boss? New Clarity on the Corporate Transparency Act – DarrowEverett LLP.[View source.]

UNS or LEI number. The company’s address must be a street address.A reporting company must also submit, in respect of each beneficial owner and company applicant, the individual’s full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document, such as a driver’s license or passport. An image of that driver’s license or passport must also be included.The rule becomes effective on January 1, 2024. Companies created or registered before that date will have one year to file initial reports. Reporting companies created or registered after January 1, 2024, will have only 30 days after receiving notice of their creation or registration to file their initial reports. Reporting companies are given 30 days to report changes to information in previously filed reports and must correct inaccurate information within 30 days of discovering the inaccuracy.31 USC 5311 et seq., esp. 5336. 87 FR 59500 87 FR 59499 87 FR 59498 et seq.[View source.]