FinCEN Beneficial Ownership Reporting: For Real Estate Investors, the FinCEN Identifier May be Key

By:      William F. Webster

As discussed in two previous posts to this Tax Notebook Blog,[i] FinCEN has published final regulations (Final Regulations) establishing a new reporting regime for Beneficial Ownership Information (BOI) pursuant to the Corporate Transparency Act (CTA) whereby most corporations, limited liability companies, limited partnerships, and other similar entities created in or registered to do business in the United States must report their BOI to FinCEN.

This new and significant reporting requirement will go into effect on January 1, 2024.  Companies required to report (Reporting Companies) which were formed before that date will have one year to comply with the reporting requirement.  Reporting Companies formed after that date will have 30 days after formation to comply with the reporting requirement.

Below is a brief summary of the BOI reporting requirements.  For a more detailed treatment, refer to the earlier blog posts mentioned above.

• Reporting Companies include any corporation, limited liability company (LLC), or other entity created by filing a formation document under the laws of a State or Indian tribe (g., limited partnerships, business trusts, and statutory trusts are also included).
• The Final Regulations list 23 types of entities which are exempt from the reporting requirement—mostly larger companies and companies that already report beneficial ownership information to other governing bodies.
• A Reporting Company must submit to FinCEN certain information with respect to: (1) the Reporting Company itself; (2) each beneficial owner; and (3) the company applicant (e., the individual who filed the company’s formation document).
• The Reporting Company must report its full name, any alternative names, business address, jurisdiction of formation or registration, and Taxpayer Identification Number (TIN).
• For each beneficial owner, and each company applicant, Reporting Companies must disclose the individual’s full legal name, date of birth, current residential or business street address, and a unique identifying number from an acceptable identification document (g., a valid passport or driver’s license), with a scanned copy of the identification document.
• “Beneficial owner” is defined as any individual who, directly or indirectly, either: (1) exercises substantial control over a Reporting Company, or (2) owns or controls at least 25% of the ownership interests of a Reporting Company.
• Individuals who exercise “substantial control” include senior officers, those with the authority over appointment or removal of senior officers, individuals that exert substantial control over important decisions affecting the company, and, as a final catch-all, any individuals that exert “any other form of substantial control over the reporting company.”

One can see how the BOI reporting requirement can become particularly onerous in industries where a beneficial owner or owners form and control multiple entities.  An example would be the real estate industry, where a single real estate investor, or group of investors, may form and control a different special purpose entity for each real estate investment.  Each of these could be a Reporting Company, collectively creating a substantial reporting burden.

Likewise, the BOI reporting requirement can become burdensome for “company applicants” who, as part of their job, file the formation documents for numerous Reporting Companies, and must report for each one.

Fortunately the Final Regulations provide a method to ease the burden for individuals who are the beneficial owners or company applicants of many Reporting Companies.  This is the “FinCEN Identifier:” a unique identifying number assigned by FinCEN to a person by submitting to FinCEN an application containing the information about that person which would be required in a report filed by a Reporting Company.  In lieu of specific information required for an individual beneficial owner, the Reporting Company could simply provide the individual’s FinCEN Identifier.

On January 17, 2023, FinCEN published a Notice (FinCEN Identifier Notice) describing the proposed FinCEN Identifier application process, and seeking public comments.  The FinCEN Identifier application will be available to persons who have obtained accounts at, and logged in through, login.gov.

Obtaining a FinCEN Identifier is voluntary. To obtain one, individuals must submit applications to FinCEN that contain certain information about themselves, and must update that information as needed.  FinCEN will store the information provided in its BOI database for access by authorized users.  The data required by the proposed application is similar to the BOI required to be furnished by a Reporting Company, and consists of the individual’s:

• Full legal name;
• Date of birth;
• Address, and type of address (e., business or personal);
• Identifying document (e., state-issued driver’s license or passport) number and issuing jurisdiction;
• An image of the identifying document; and
• A Certification, certifying that the information is true, correct and complete.

According to the FinCEN Identifier Notice, the primary reasons that individuals may seek FinCEN Identifiers are for (i) data security purposes, where an individual would prefer to submit their personal data directly to FinCEN rather than indirectly through the Reporting Company; and (ii) administrative efficiency, where an individual is likely to be identified as the beneficial owner or company applicant of numerous Reporting Companies.

Bottom Line:  The FinCEN BOI reporting requirements are coming on January 1, 2024, and the reporting burden could be significant for those beneficial owners in industries, such as real estate investment, which require the formation and ownership of multiple Reporting Companies, and for company applicants who file the formation documents for numerous Reporting Companies.  For those individuals, application for the FinCEN Identifier could substantially ease the burden.

You can access the FinCEN Identifier Notice in the Federal Register here:

https://www.govinfo.gov/content/pkg/FR-2023-01-17/pdf/2023-00708.pdf

[i]  “The Coming FinCEN Reporting Requirements” (April 19, 2022), and “FinCEN Reporting Requirements Have Arrived” (February 28, 2023).