Final Rule Issued on Beneficial Ownership Reporting Requirements

In a move that could affect many small business owners, the Financial Crimes Enforcement Network (FinCEN) issued a final rule on Sept. 29 implementing the beneficial ownership reporting requirements of the Corporate Transparency Act (CTA). The CTA was passed at the end of 2020 and is meant to protect U.S. national security and the U.S. financial system by helping law enforcement and other officials prevent and combat money laundering and other illicit activities.

Congress tried for many years to pass a Corporate Transparency Act. NAHB worked with members of Congress to shape the legislation and the beneficial ownership federal reporting requirements in the final rule are less intrusive for our members and the small business community due to our input. Prior to the final rulemaking, NAHB submitted comments to FinCEN on recommendations to reduce problematic provisions and our efforts helped to ensure that the final rule is less onerous for our members and other small businesses.

The rule requires beneficial ownership information to be filed with FinCEN by certain corporations and limited liability companies (LLCs) when they are formed and by certain existing corporations and LLCs when they meet the CTA’s definition of a reporting company.

Reporting companies targeted by this legislation are those with 20 or fewer employees and less than $5 million in gross receipts or sales as reflected in the companies’ previous year's federal tax returns.

The final rule is extremely complex. FinCEN will develop compliance and guidance documents to help reporting companies understand their responsibilities and obligations under the rule. The key components of the rule include:

• Identifying the types of companies subject to reporting;
• Defining significant terms such as “beneficial owner,” “substantial control,” and “company applicant;”
• Specifying the information required in the beneficial ownership information reports; and
• Prescribing the timing of initial reporting and reporting of changes to information in previously filed reports.

In general, a reporting company is a corporation, LLC, or any entity created by the filing of a document with a secretary of state or any similar offices under the law of a state or Indian tribe.

In addition to corporations and LLCs, FinCEN expects reporting companies will include limited liability partnerships, limited liability limited partnerships, business trusts and most limited partnerships. Other types of legal entities, including certain trusts, are excluded from the definitions to the extent that they are not created by the filing of a document with a secretary of state or similar office.

NAHB is reviewing the details of the final rule, which will be effective Jan. 1, 2024.