On November 16, 2023 FinCEN issued additional FAQs on their website to answer new questions about the reporting process, reporting companies, beneficial owners, company applicants, reporting requirements, initial reports, and reporting company exemptions.

Importantly, readers should note that FinCEN's FAQs are "explanatory only and do not supplement or modify any obligations imposed by statute or regulation." In other words, the FAQs are suggestive of how FinCEN staff think about the CTA and FinCEN's regulations but they are not binding.

Some of the more interesting questions and their answers are set out below. My commentary appears in the italicized text.

C. 4. Is a trust considered a reporting company if it registers with a court of law for the purpose of establishing the court's jurisdiction over any disputes involving the trust?

No. The registration of a trust with a court of law merely to establish the court's jurisdiction over any disputes involving the trust does not make the trust a reporting company.

[Issued November 16, 2023]

Commentary: This is consistent with the definition of "reporting company" in the statute and the Reporting Rule. They key element of a reporting company is the filing of a document with a Secretary of State or similar tribal government.

D. 6. Is my accountant or lawyer considered a beneficial owner?

Accountants and lawyers generally do not qualify as beneficial owners, but that may depend on the work being performed.

Accountants and lawyers who provide general accounting or legal services are not considered beneficial owners because ordinary, arms-length advisory or other third-party professional services to a reporting company are not considered to be "substantial control" (see Question D.2). In addition, a lawyer or accountant who is designated as an agent of the reporting company may qualify for the "nominee, intermediary, custodian, or agent" exception from the beneficial owner definition.

However, an individual who holds the position of general counsel in a reporting company is a "senior officer" of that company and is therefore a beneficial owner. FinCEN's Small Entity Compliance Guide includes a checklist to help determine whether an individual qualifies for an exception to the beneficial owner definition (see Chapter 2.4, "Who qualifies for an exception from the beneficial owner definition?").

[Updated November 16, 2023]

Commentary: This interpretation creates risk for attorneys who act as "general counsel" to their clients. Clearly, the FAQ suggests that a non-owner, non-employee attorney might be a "senior officer" because that attorney acts as a "general counsel." Unfortunately, there is no guidance in this FAQ or in the Reporting Rule that distinguishes between (i) attorneys who provide a wide range of legal services to a reporting company, and (ii) attorneys who function as a reporting company "general counsel."

E. 4. Can a company applicant be removed from a BOI report if the company applicant no longer has a relationship with the reporting company?

No. A company applicant may not be removed from a BOI report even if the company applicant no longer has a relationship with the reporting company. A reporting company created on or after January 1, 2024, is required to report company applicant information in its initial BOI report, but is not required to file an updated BOI report if information about a company applicant changes.

[Issued November 16, 2023]

Commentary: Individuals who act as "company applicant" should realize that the action lasts forever. The reporting company has a "company applicant" at the time of its formation (or registration, in the case of a foreign reporting company). The term does not describe on ongoing relationship.

L. 4. If I own a group of related companies, can I consolidate employees across those companies to meet the criteria of a large operating company exemption from the reporting company definition?

No. The large operating company exemption requires that the entity itself employ more than 20 full-time employees in the United States and does not permit consolidation of this employee count across multiple entities.

FinCEN's Small Entity Compliance Guide includes a checklist for this exemption (see exemption #21).

[Issued November 16, 2023]

Commentary: The "employee" prong of the large operating company exemption is especially challenging. The regulations incorporate by reference the definition of "employee" from the Affordable Care Act, and that law contains rules for aggregating employees across related corporate entities. Companies that are 'close to the line' on the employee prong of this exemption should take care to consult counsel.

L. 5. How does a company report to FinCEN that the company is exempt?

A company does not need to report to FinCEN that it is exempt from the BOI reporting requirements if it has always been exempt.

If a company filed a BOI report and later qualifies for an exemption, that company should file an updated BOI report to indicate that it is newly exempt from the reporting requirements. Updated BOI reports are filed electronically though the secure filing system. 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.

[Issued November 16, 2023]

Commentary: If a reporting company is exempt when its first BOI Report is due, it does not need to file a BOI Report claiming itself exempt. However, if a reporting company files a BOI Report and later becomes exempt, that reporting company should file an amendment to give FinCEN notice of its newly exempt status.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.