On June 10, 2024, the Financial Crimes Enforcement Network (FinCEN) released further guidance regarding Corporate Transparency Act (CTA) compliance by updating and expanding the Beneficial Ownership Information (BOI) Reporting Frequently Asked Questions (FAQs) as has become regular practice.
The updates provide clarity on reporting requirements for Indian Tribes and entities formed under Tribal law, as well as clarity regarding exemptions for certain public utilities and large operating companies.
Tribal Entities, Entities Established under Tribal Laws
Under the CTA, an "Indian Tribe" includes any Indian or Alaska Native tribe, band, nation, pueblo, village, or community recognized by the Secretary of the Interior, who publishes a list of recognized Indian Tribes annually in the Federal Register. Entities formed under Tribal law must report beneficial ownership information if they meet the definition of a reporting company and do not qualify for exemptions.
Legal entities created by filing documents with Tribal offices or agencies, similar to state secretaries of state, are considered reporting companies. However, Tribal corporations formed under federal law, such as those under the Oklahoma Indian Welfare Act or the Indian Reorganization Act, are not considered reporting companies. "Governmental authorities," including tribally chartered corporations exercising governmental authority, are exempt from reporting, as are subsidiaries wholly owned or controlled by a governmental authority. Additional exemptions, such as those for tax-exempt entities, may also apply.
Reporting companies must report individuals with substantial control or who own or control at least 25% of ownership interests. An Indian Tribe is not considered an individual and should not be reported as a beneficial owner. As noted above, entities classified as "governmental authorities" are exempt from reporting, as are subsidiaries entirely controlled or owned by a Tribal governmental authority. Non-exempt entities partially owned by Tribes must report individuals with substantial control or 25% ownership unless ownership is through an exempt entity.
Corporations as Public Utilities
FinCEN's regulations exempt certain regulated public utilities from reporting their beneficial ownership information if they provide telecommunications services, electrical power, natural gas, or water and sewer services within the United States. The FAQ has now clarified that this exemptions includes corporations engaged in furnishing or selling telephone or telegraph services, provided their rates meet the requirements specified in 26 U.S.C. 7701(a)(33)(A) and 26 U.S.C. 7701(a)(33)(D).
Determining Large Operating Company Status
If a company has not yet filed its Federal income tax return for the previous year when beneficial ownership information is required, it should use the return filed in the previous year. Should a company later file a return showing less than $5 million in gross sales or receipts, thus losing its exemption, it has 30 days from the return date to file an initial BOI report. The return must demonstrate more than $5 million in gross receipts or sales, net of returns and allowances, excluding receipts from sources outside the United States.
Conclusion
The updates from FinCEN continue to offer clarity to potential reporting companies who are grappling with BOI reporting requirements under the Corporate Transparency Act. The June 10, 2024 update demonstrates that exemptions are designed to limit redundancy in reporting obligations for entities that have reporting obligations under separate regimes. However, the FAQs also reinforce the principle that potential reporting companies should be proactive in determining their reporting obligations, if any, as the intent of the CTA is to be broadly applicable to non-exempt entities.
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