We have through our SKO Insiders sought to keep you apprised of developments in the Corporate Transparency Act (the “CTA”). In addition, SKO’s Thomas Rutledge has for the American Bar Association’s Section of Business Law co-authored a trio of articles, released in January, February, and March of this year, that have in detail tracked the various actions in the courts, of Congress, and of the administration as to the CTA’s fate. There was last Friday a momentous development.
As promised in a series of unofficial announcements from March 2, last Friday FinCEN, the office of the Treasury Department charged with enforcing the CTA, issued an “interim final order” (the “IFO”) that reduced the CTA’s scope to .03% of what it had been. Recall that under the prior rule essentially every corporation, LLC or other “reporting company” organized in the U.S. was obligated to file a beneficial ownership information report (a “BOIR”) with FinCEN. A parallel requirement applied to every non-U.S. company qualified to transact business in the U.S. Under the rule announced on Friday reporting companies organized in the U.S. are no longer required to file BOIRs. While the obligation to file BOIRs continues to apply to companies organized in foreign countries that have qualified to transact business in the U.S., those reports do not need to include information as to any beneficial owner who is a U.S. citizen. For any foreign companies required to file an initial BOIR, while it may be moved by a day or so, treat the filing deadline as April 26.
There are some technical issues under the IFO such as the identification of U.S. citizens who are “company applicants” for foreign companies that are first qualified to transact business after January 1, 2024, and the ongoing need for U.S. citizens who applied for and received a FinCEN ID to keep the underlying information current that may be resolved between now and the issuance of the anticipated final rule.
If your company has already filed a BOIR you may be wondering about the information submitted. We have no guidance as to that point, but there is no mechanism by which you may “unfile” the information, and we have no indication that the database will be destroyed. However, if you have already filed, under the IFO, you do not have to update or correct a BOIR previously reported to FinCEN.
FinCEN is accepting comments on the IFO, which must be received within 60 days after publication of the IFO. FinCEN will assess the exemptions, as appropriate, in light of those comments and intends to issue a final rule later this year.
So, is it over? Well, maybe not. The federal CTA statute is still the law, and it provides that there are certain penalties, including the infamous $500 per day (now adjusted for inflation to $606 a day); while the current administration has signaled that it will not be enforcing the penalty provisions of the CTA, a future administration might. Also, there is a question that may end up in litigation, namely whether by administrative fiat an act of Congress may be reduced in its application by over 99% (recall the disputes over whether an administration could by executive action grant sweeping student loan relief) and whether the IFO is legitimate when the facts it alleges in granting relief to all domestic reporting companies and U.S. citizens are inconsistent with the prior fact findings.
SKO will continue to track these developments. In the meantime, companies organized in the U.S. and U.S. citizens are relieved of the obligation to file BOIRs.
