FinCEN Issues New Guidance on Reporting Company Filing Requirements

The U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) on July 8, 2024, issued additional FAQs¹ providing guidance on Reporting Company filing requirements under the Corporate Transparency Act (CTA) in the event of the dissolution or termination of a Reporting Company prior to the due date for its Initial Beneficial Ownership Information Report (BOIR). Pursuant to the new guidance from FinCEN, a Reporting Company that dissolved or terminated prior to the due date for its Initial BOIR is still required to file an Initial BOIR.

Since the CTA entered into force on Jan. 1, 2024, the question of whether a Reporting Company is required to file an Initial Report if it dissolves or terminates prior to the date it is required to file an Initial Report and variants of that question have been the most frequently asked questions that Holland & Knight has received.

This question and the new FinCEN guidance impacts 1) Reporting Companies formed or registered prior to Jan. 1, 2024, that were dissolved or terminated prior to the Jan. 1, 2025, reporting deadline and 2) Reporting Companies formed or registered in 2024 that were dissolved or terminated prior to the 90-day reporting deadline, inclusive of the common scenario where a Reporting Company was formed to function as a transitory merger subsidiary.

FinCEN has now clarified that a Reporting Company is required to file an Initial BOIR in these scenarios. FinCEN has confirmed that a Reporting Company is not required to file an Updated BOIR to report its dissolution, termination or otherwise going out of existence. Therefore, once the Initial BOIR is filed, the Reporting Company is not required to file an Updated BOIR upon dissolution.

FinCEN did not address the specific scenario where a Reporting Company qualifies for an exemption prior to the due date for its Initial BOIR. However, if the same logic underlying these new FAQs is applied to that scenario, then a Reporting Company would need to file both an Initial BOIR and an Updated BOIR reporting its exempt status.²

FinCEN FAQs

Below are FinCEN's latest interpretative guidance (FAQs) on the dissolution/termination issues, which was released on July 8, 2024.

Is a Company Required to Report Its Beneficial Ownership Information to FinCEN if the Company Ceased to Exist Before Reporting Requirements Went into Effect on Jan. 1, 2024?

A company is not required to report its beneficial ownership information to FinCEN if it ceased to exist as a legal entity before Jan. 1, 2024, meaning that it entirely completed the process of formally and irrevocably dissolving. A company that ceased to exist as a legal entity before BOIR requirements became effective Jan. 1, 2024, is not subject to the BOIR regime and, thus, is not required to report its beneficial ownership information to FinCEN.

Although state or tribal law may vary, a company typically completes the process of formally and irrevocably dissolving by, for example, filing dissolution paperwork with its jurisdiction of creation or registration, receiving written confirmation of dissolution, paying related taxes or fees, ceasing to conduct any business and winding up its affairs (e.g., fully liquidating itself and closing all bank accounts).

However, if a Reporting Company continued to exist as a legal entity for any period of time on or after Jan. 1, 2024, (i.e., it did not entirely complete the process of formally and irrevocably dissolving before Jan. 1, 2024), then it is required to report its beneficial ownership information to FinCEN, even if the company had wound up its affairs and ceased conducting business before Jan. 1, 2024.

Similarly, if a Reporting Company was created or registered on or after Jan. 1, 2024, and subsequently ceased to exist, then it is required to report its beneficial ownership information to FinCEN – even if it ceased to exist before its Initial BOIR was due.

To determine when a Reporting Company ceases to exist as a legal entity it is necessary to consult the law of the jurisdiction in which the Reporting Company was created or registered. Note: A Reporting Company that is administratively dissolved or suspended – because, for example, it failed to pay a filing fee or comply with certain jurisdictional requirements – generally does not cease to exist as a legal entity unless the dissolution or suspension becomes permanent.³

If a Reporting Company Created or Registered in 2024 or Later Winds Up Its Affairs and Ceases to Exist Before Its Initial BOIR Is Due to FinCEN, Is the Company Still Required to Submit that Initial Report?

Yes. Reporting Companies created or registered in 2024 must report their beneficial ownership information to FinCEN within 90 days of receiving actual or public notice of creation or registration. Reporting Companies created or registered in 2025 or later must report their beneficial ownership information to FinCEN within 30 days of receiving actual or public notice of creation or registration.

These reporting obligations remain applicable to Reporting Companies that cease to exist as legal entities – meaning they wound up their affairs, ceased conducting business and entirely completed the process of formally and irrevocably dissolving – before their initial beneficial ownership reports are due.

If a Reporting Company files an initial beneficial ownership information report and then ceases to exist, the Reporting Company is not required to file an additional report with FinCEN reflecting that the Reporting Company has ceased to exist.⁴

Takeaways

No. 1: FinCEN has clarified the BOIR requirements that are applicable for Reporting Companies that have been terminated or otherwise ceased to exist prior to the due date of an Initial BOIR.⁵ Although that guidance is helpful, FinCEN, unfortunately, has not provided guidance with respect to the identification of the individuals required to prepare and submit the BOIR for a dissolved Reporting Company or the individual beneficial owners that should be reported, particularly if the Initial Report is filed after dissolution. A dissolved Reporting Company, therefore, is faced with deciding which individuals should be responsible for submitting the BOIR on behalf of the Reporting Company and which individuals should be reported as beneficial owners. In that regard, keep in mind that FAQ G.4. explicitly states that that an Initial Report should include only the beneficial owners as of the time of filing, which further complicates this analysis. As a planning point, a Reporting Company that expects to dissolve before the due date of its Initial BOIR should endeavor to file its Initial BOIR prior to its dissolution to avoid these difficulties.

No. 2: FinCEN has explicated that a company typically completes the process of formally and irrevocably dissolving by, for example, 1) filing dissolution paperwork with its jurisdiction of creation or registration, 2) receiving written confirmation of dissolution, 3) paying related taxes or fees, 4) ceasing to conduct any business and 5) winding up its affairs (e.g., fully liquidating itself and closing all bank accounts).

No. 3: In connection with a limited liability company (LLC), the distinction between "dissolution" and "termination" should be understood. Briefly, dissolution does not terminate an LLC's existence. What dissolution does is change the purposes of an LLC's existence from that of conducting whatever business it conduced previously to winding up and liquidating. Termination of an LLC occurs when a business entity ceases to exist legally.

No. 4: There may be situations where if an entity has not fully terminated, it could claim an exemption as an "inactive" entity.⁶

No. 5: FinCEN has clarified that entities formed on or after Jan. 1, 2024, that have since been terminated prior to their Initial Report reporting deadline are still required to file an Initial Report. That would include entities that are merged with other entities, which is common when structuring a mergers and acquisitions (M&A) transaction (transitory merger subsidiaries).

No. 6: In view of the recent FinCEN guidance, practitioners now should consider obtaining an employer identification number (EIN) for merger subsidiaries and obtaining EINs for each merged entity in the transaction to not run afoul of the BOIR requirements.⁷ However, as noted above, FinCEN should provide further guidance to determine the information required to be reported by each dissolved entity.

For more information or questions on the Corporate Transparency Act and its final operating rules, contact the authors or a member of Holland & Knight's Corporate Transparency Act Team.

Notes

¹ FinCEN provides that FAQs are explanatory only and do not supplement or modify any obligation imposed by statute or regulations.

² In this scenario, the same reporting difficulties would arise as discussed in Takeaway No. 1.

³ FAQ, C. 13

⁴ FAQ, C. 14

⁵ The company should consult the laws of the jurisdiction where the company was formed or registered to determine when a company ceases to exist as a legal entity.

⁶ To qualify for the inactive entity exemption, the following requirements must be satisfied: was in existence on or before Jan. 1, 2020; is not engaged in an active business; is not owned by a non-U.S. person, whether directly or indirectly, wholly or partially; has not experienced any change in ownership in the preceding 12-month period; has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity maintains an interest in the preceding 12-month period; and does not otherwise hold any kind or type of assets, whether in the U.S. or abroad, including any ownership interest in any corporation, LLC or other similar entity.

⁷ A subsidiary of an exempt entity does not have reporting requirements.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.