BOI Reporting – Scope of Filings is Greatly Reduced

By Stanley Rose March 25, 2025

Those following the on again, off again changes to Beneficial Ownership Information (“BOI”) reporting may be suffering from whiplash. Since our last update a few weeks ago, two significant developments have taken place. First, earlier this month, the Treasury Department stated that it was working on some proposed rules that would narrow the scope of the BOI reporting requirements, and while it did so, it would not enforce any penalties or fines related to the existing rules. Then, late last week, it issued those promised rules, and they represent a considerable departure from the rules that existed before that change. Of most significance, the rules now eliminate the reporting requirements for U.S. persons and entities.

Background

This article assumes its readers are familiar with the BOI rules in general, and the ping-pong volley that ensued as the law’s validity was called into question via multiple lawsuits, resulting in repeated suspensions of the rules followed by reinstatements with extended filing deadlines – all over a period of several months. Those who aren’t familiar can get up to speed by reading the chronology breakdown in our January 9 article, followed by an update in our February 20 article, and understanding that in early March, the Treasury Department promised not to enforce the rules for a period while it cooked up some changes to those very rules.

The latest change varies from all of the previous ones in that all the court cases and filing extensions sprung from lawsuits questioning the actual validity of the rules; in contrast, now the very rules are being altered in a manner that far, far fewer parties will actually need to file these reports or provide the highly personal and often difficult to collect data required by them.

The change

The gist of the latest change can be simplified as follows: Referencing categories of potential filers as defined in the original rules, the new rules focus on a distinction between “foreign reporting companies” and “domestic reporting companies,” and state that the filings now are required only of foreign reporting companies.

As the rules were originally written, the filings are required of nearly every entity, including foreign entities and domestic entities. In the case of a domestic entity, the rules applied if the legal formation of that entity was undertaken by filing documents (like articles of incorporation) with a state’s Secretary of State. (This captures nearly every entity.) The purpose of the rules is to combat terrorism and money laundering, which are two major goals of the division of the Treasury Department that handles these rules (the Financial Crimes Enforcement Network, or “FinCEN,” as distinguished from its better-known cousin, the Internal Revenue Service, which of course appears in our rolodexes and Christmas card lists as “IRS”). The rules were to accomplish this goal by giving the federal government full optics into each entity’s direct ownership and indirect ownership – thus creating a national databased that mirrored – and exceeded – that which individual states had on file. Exceptions existed for entities that for other reasons were already “on the grid” with various government agencies, like large companies and certain industries that already receive scrutiny from the SEC. Thus, the rules would impact primarily small- and medium-sized business owners. The recent change, though, redefines who must file by excluding entities formed in the U.S. (meaning it excludes entities that were formed by filing documents with one of the 50 states’ Secretaries of State, as described above). The filings now apply only to entities formed outside of the U.S., and the new rules provide a 30-day extension of time for foreign entities to file.

Observation

The astute reader might point out that the law itself that creates BOI requirements was created as part of the Corporate Transparency Act (“CTA”) and enacted by Congress and wonder how FinCEN thinks it has the power to undo part of it (the executive branch of federal government second-guessing the legislative branch). FinCEN believes it has this authority because Congress included wording in the CTA authorizing Treasury, if the U.S. Attorney General agrees, to exempt classes of businesses if their inclusion would not serve the public interest.

The astute reader, though, might also share our sneaking suspicion that we have not heard the last on this matter yet. This rule does toggle the filing requirement switch back into the “off” position for many, and probably most, entities otherwise on the hook. However, that fact alone may be the reason for some concern. It would have been easy for Congress to write the rules in a way that they applied only to foreign entities, and they chose not to. This latest interpretation seemingly neuters the impact of the statutory law so dramatically that it now has very narrow applicability.

Until now, the seemingly endless changes and filing deadline extensions have been the result of a chess match between interested non-government parties on one side, and the Justice Department (executive branch) on the other, duking it out in court with injunctions and reversals and reinstatements of injunctions. With the change in administration early this year, the former opponents are now on the same side. It is altogether possible that this isn’t over, and a new chess match will soon be started, with the executive branch on one side, and Congress on the other. If so, the board is set, and Congress has the next/first move.

For more information, please contact Stanley Rose or your BNN tax advisor at 800.244.7444.