FinCEN updates CTA FAQs for the first time in three months

On April 18, 2024, the Financial Crimes Enforcement Network (FinCEN) published an updated set of Frequently Asked Questions (FAQs) pertaining to the Beneficial Ownership Information (BOI) Reporting Rule under the Corporate Transparency Act (CTA). This marks FinCEN’s first update to the FAQs since January 2024.

One of the updates to the FAQs further clarifies that a Beneficial Owner will always be a natural person, and that intermediate entities do not need to be reported as Beneficial Owners.

Under the CTA a reporting company is required to identify any individual who, directly or indirectly, (a) exercises substantial control over a reporting company, or (b) owns or controls at least 25% of the ownership interests of a reporting company.

The updated FAQs clarify that an “individual” means “natural persons”, and explicitly state that trusts^[1], corporations, or legal entities do not constitute Beneficial Owners^[2]; however, there are instances in which a reporting company may elect to report information for a trust, corporation, or legal entity instead of a beneficial owner.

There are limited instances where a corporate entity may be reported in lieu of natural persons. When a corporate entity owns or controls 25% or more of the ownership interests of a reporting company, the reporting company should not report the corporate entity that acts as an intermediate for the individuals as a Beneficial Owner, unless one of the following two exceptions apply:

1. If a natural person owns or controls ownership interests exclusively through ownership interests in the exempt entity or entities, then the exempt entity or entities may be reported in lieu of the natural person.
2. If the reporting company has the same individuals who own or control the ownership interests in the reporting company as a parent entity, the FinCEN ID and name of that parent entity may be reported in lieu of the natural persons.

It remains crucial for reporting entities to examine their corporate structure in order to accurately determine which individuals need to be, or upon the applicability of one of the two exceptions detailed above, which entities may be, disclosed as Beneficial Owners.

[1] The FinCEN BOI FAQs further clarify the BOI requirements for trusts or corporate trustees that own or control a reporting company. See FAQs, D14-D16. Notably, the updated FAQs clarify that a reporting company may identify a corporate trustee as a Beneficial Owner upon satisfaction of the following three criteria: (i) the corporate trustee is an entity exempt from the reporting requirements; (ii) the individual Beneficial Owner owns or controls at least 25% of the reporting company’s ownership interests only by way of the corporate trustee; and (iii) the individual beneficial owner does not exercise substantial control over the reporting company. See FAQs, D16 (emphasis added).

[2] FinCEN BOI FAQs, D1