New BOI reporting guidance issued for short-lived entities and foreign companies

As we approach Jan 1, 2025, the effective BOI reporting deadline for entities formed before Jan 1, 2024, the Financial Crimes Enforcement Network continues to refine its guidance to help ensure clarity and compliance by releasing crucial updates to its Frequently Asked Questions. The Sep 10, 2024, updates (FAQ PDF / FAQ website) shed light on some of the more nuanced aspects of BOI reporting and helped clarify some of the more pressing questions we continue to hear. 

For accounting firms and tax professionals, understanding these updates is critical in guiding the tens of millions of LLCs, closely-held businesses, and other small business clients through the complexities of BOI compliance.

Corporate Transparency Act and BOI: A quick review

As I detailed in an article last year, the Corporate Transparency Act is a pivotal part of the Anti-Money Laundering Act of 2020. It marks a significant shift in corporate transparency requirements in the United States, aiming to create a comprehensive database of beneficial ownership information accessible to law enforcement agencies and financial institutions. This initiative is designed to prevent the misuse of corporate structures for illicit purposes, including money laundering, terrorism financing, and tax evasion.

For more background on the Corporate Transparency Act and BOI reporting requirements, read my article Corporate Transparency Act presents opportunity and risk for firms.

The latest FinCEN updates and their implications

As with any new legislative or regulatory requirement, there is no lack of questions. The latest FinCEN FAQs are particularly relevant for companies that cease operations shortly after formation, foreign entities operating in the U.S., and reporting historical beneficial ownership information. 

Reporting requirements for short-lived entities (FAQ C.14)

One of the most significant clarifications from this FAQ update pertains to entities that cease to exist shortly after creation or registration. FAQ C.14 answers a question asked multiple times at every BOI webinar we host — does an entity still have to file if it ceases operation before its reporting deadline?

The updated guidance establishes a clear mandate: Regardless of how quickly a company winds up its affairs, it must fulfill BOI reporting obligations.

Companies established in 2024 must file within 90 days of receiving notice of creation or registration, while companies established in 2025 or later must file within 30 days.

While the requirement applies even if the company ceases to exist before the reporting deadline, no additional report is necessary if a company files its initial BOI report and then ceases to exist before the deadline.

(Read the full text of FAQ C.14.)

Implications for CPAs and tax professionals

With the clarification from FAQ C.14, those who are working with clients on BOI reporting should consider taking these three steps:

• Advising clients to ensure they understand their BOI reporting obligations, even in cases of rapid business closure;
• Maintaining heightened vigilance during company formation and dissolution processes; and,.
• Implementing robust tracking systems to ensure compliance with these tight reporting windows.

Foreign company reporting obligations (FAQ C.16)

Addressing a critical gap in understanding for foreign entities operating in the U.S. market, FAQ C.16 is new. While the FAQ only asked whether foreign companies were required to report BOI if they had ceased operations before the BOI effective date of Jan 1, 2024, the guidance addresses when foreign companies are subject to BOI reporting requirements.

The three key points from C.16 regarding foreign entities are:

• Foreign companies are exempt from BOI reporting if they ceased U.S. operations before Jan 1, 2024;
• FinCEN considers a foreign company to have ceased U.S. operations when it completes the formal and irrevocable withdrawal of all U.S. registrations; and
• BOI filing is required for foreign companies registered to do business in the U.S. on or after Jan 1, 2024. Even if they subsequently withdraw registration or had already wound up affairs before that date, they must file a BOI report.

(Read the full text of FAQ C.16.)

Implications for CPAs and tax professionals

C.14 provides much-needed clarity regarding foreign entities. Anyone working with foreign entities should consider:

• Conducting a thorough review of any foreign clients’ U.S. registration status;
• Assisting in determining the precise dates of registration withdrawal for any borderline cases; and,
• Developing clear communication strategies to inform foreign clients of their reporting obligations, especially those who may have ceased U.S. operations but maintained registrations.

Historical beneficial ownership reporting (FAQ G.4)

The updated FAQ G.4 provides essential guidance on the temporal aspect of beneficial ownership reporting, addressing whether historical ownership information should be included in initial reports.

The general rule is that initial BOI reports should only include beneficial owners as of the filing date, but there is an exception.

The exception is specifically for a company that meets all of the following criteria:

• It was created/registered during/after 2024;
• It ceased operations before its reporting deadline; and,
• The report is filed post-dissolution. 

If a company meets all three criteria above, the report filed should reflect BOI accurately as of the moment before the company ceases to exist.
Implications for CPAs and tax professionals

With any general rule usually comes exceptions, and FAQ G.4 isn’t any different. If you’re working with clients on BOI, consider:

• Developing clear protocols for capturing “point-in-time” beneficial ownership information;
• Implementing systems to track changes in beneficial ownership, particularly for clients nearing dissolution; and,
• Educating clients on the importance of timely reporting and the potential need to capture historical data in specific scenarios.

(Read the full text of FAQ G.4.)

Strategies for compliance and client advisory

As accounting and tax professionals, your role in navigating these new requirements is crucial. As you consider the strategies below, make sure your clients understand that you are not providing legal advice; the client should engage legal counsel if such is required.

(Read more about BOI and UPL in my article, “CNA to provide CPA firms with BOI coverage.”)

Education and communication

• Develop comprehensive educational materials for staff and clients, including regular briefings on CTA requirements and FinCEN updates.
• Create clear, concise communication templates to inform clients of their obligations.
• Ensure you alert clients that you are not providing legal advice and that the client should engage legal counsel if such is required. This language should be included in your engagement letter with your clients.

Technology and process adaptation

• Invest in or develop robust tracking systems for client entity statuses and reporting deadlines.
• Implement automated alerts for approaching deadlines and status changes.
• Establish transparent workflows for gathering and verifying beneficial ownership information.

Risk assessment and mitigation

• Conduct thorough reviews of your client base to identify entities at high risk of noncompliance.
• Develop tailored strategies for complex cases, such as foreign entities or companies nearing dissolution.
• Consider partnering with legal experts for particularly challenging scenarios and cases where a legal opinion is necessary.

Proactive advisory services

• Offer BOI compliance checks/reporting as part of your regular services.
• Guide on structuring decisions that may impact BOI reporting obligations. Again, CPAs must make clear to the client that if a legal opinion is required, the client should consult a lawyer. Avoiding the unauthorized practice of law (UPL) is a must.
• Assist clients in developing internal processes for ongoing compliance and updates.

Continuous learning and adaptation

• Stay abreast of further FinCEN updates and guidance.
• Participate in industry forums and discussions on CTA implementation.
• Regularly reassess and refine your firm’s BOI reporting advisory services approach.

What’s next 

The latest FinCEN FAQ updates represent a significant step towards clarifying the nuances of BOI reporting under the Corporate Transparency Act. These clarifications offer both challenges and opportunities for accounting firms and tax professionals. By thoroughly understanding these requirements and their implications, you further position yourselves as invaluable advisors in an increasingly complex regulatory landscape.

As we move closer to full implementation of the CTA, staying informed and agile cannot be overstated. These updates on short-lived entities, foreign company obligations, and historical reporting are the latest guidance from FinCEN to respond to confusion and unanswered questions. Many unanswered questions remain, and continued guidance will be forthcoming.