Updated FAQs on beneficial ownership information (BOI) from Treasury’s Financial Crimes Enforcement Network (FinCEN) include details on the timing of the phase in of access to BOI under Section 6403 of the Corporate Transparency Act (CTA), P.L. 116-283.

In the updated FAQs posted Thursday, FinCEN added a new section on BOI access, a subject that Congress focused on when Director Andrea Gacki testified in February before the House Financial Services Committee.

Access will be phased in, beginning this spring with a pilot program for some federal agency users and concluding in spring 2025, when financial institutions with customer due-diligence requirements will be able to review BOI.

In between, in summer of 2024, access will be granted to Treasury offices and other federal agencies engaged in law enforcement and national security activities that already have memoranda of understanding for access to BSA information and in the fall of 2024 to additional federal agencies engaged in law enforcement, national security, and intelligence activities.

In the winter of 2024, FinCEN will extend access to intermediary federal agencies in connection with foreign government requests. Finally, in the spring of 2025, access will be extended to financial institutions subject to customer due diligence requirements under applicable law and their supervisors.

FinCEN, which administers the CTA, is not accepting access requests now; it will provide further guidance on how to request access in the future, the FAQs said.

When Gacki testified before the House committee, she said the BOI database was “established with the highest level of security for a nonclassified system, set to federal standards, the FISMA (Federal Information Security Modernization Act) standards.”

FinCEN also has standards for anyone authorized to access BOI and will ensure that the information is being accessed only for purposes allowed under the CTA, she said.

FinCEN issued an 82-page final rule on access (RIN 1506-AB59) in December 2023 without details on the timing of the access other than it would be taking a phased in approach to providing access that would begin in 2024.

The updated FAQs address other issues, including the definition of a beneficial owner. FinCEN said trusts, corporations, or other legal entities are not considered beneficial owners, although information about an entity may be used instead of information about a beneficial owner in specific circumstances. It refers to question D.12, added in January 2024, to explain those circumstances.

Previously, FinCEN defined a beneficial owner as an “individual who either directly or indirectly: (1) exercises substantial control over a reporting company … or (2) owns or controls at least 25% of a reporting company’s ownership interests …” That language remains in the updated FAQs.

Other issues in the updated FAQs include beneficial ownership through trusts and the applicability of BOI reporting requirements to S corporations and homeowners associations.

Under the CTA, which Congress passed in 2021 as an anti-money-laundering initiative, reporting companies must disclose the identity and information about beneficial owners of the entities. For new entities incorporated after Jan. 1, 2024, reporting companies must also disclose the identity of “applicants” — defined as any individual who files an application to form a corporation, LLC, or other similar entity.

Reporting companies are required to provide information about both the companies and their beneficial owners and applicants, including full legal name, address, state or tribal jurisdiction of formation, IRS taxpayer identification number, birth date, and other details. Willful violations are punishable by a fine of $591 a day, up to $10,000, and two years in prison with similarly serious penalties for unauthorized disclosure.

BOI reporting requirements are on hold for members of the National Small Business Association and an Alabama businessman, who won a summary judgment in March in their lawsuit over the CTA. FinCEN has said the requirements still apply to all other businesses who must report.

FinCEN estimates that BOI reporting regulations apply to 32.6 million entities with 5 million added each year through 2034.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.

Despite a moratorium since September on processing new claims for the pandemic-era employee retention credit (ERC), the IRS still averages 20,000 new applications weekly, Commissioner Danny Werfel told the Senate Finance Committee Tuesday.

Werfel’s comments came as Committee Chairman Sen. Ron Wyden, D-Ore., questioned him about the ERC and whether a tax bill — passed by the House in January and now stalled in the Senate — would help the IRS fight fraud in the program.

The top line items of the Tax Relief for American Families and Workers Act of 2024, H.R. 7024, include a retroactive bar on additional ERC claims as of Jan. 31, 2024. The deadline under current law is April 15, 2025.

The bill includes other ERC enforcement provisions, including extending the statute of limitation on assessment for the ERC from five years to six years from the date of the claim, defining who qualifies as a “COVID-ERTC promoter,” and increasing certain penalties and reporting requirements for those who are such promoters.

“There’s two things being harmed if that bill doesn’t get passed,” Werfel told the committee. “One, the financial bottom line of the U.S. government because you’re giving us tools to crack down on fraud. And two, in our big inventory of claims, there are still eligible claims in the midst, but they’re very hard to find. It’s like finding a needle in a haystack. And so, with your help, we can get those eligible claims found and issued and hold back from issuing the ineligible claims.”

The IRS has taken several enforcement actions to stop bogus ERC claims, including initiating a processing moratorium in September 2023. A specific resumption date has not been determined, but it could be in the late spring, the IRS said in a news release in March. 

Wyden assured Werfel that supporters of the tax bill will be “pulling out all the stops” to get it passed.

Werfel also briefly touched on technology modernization when questioned by Sen. Maggie Hassan, D-N.H., who said her constituents complain about delays in IRS services such as getting their refunds.

“Well on this I have some good news, which is the main system at the IRS that is the engine for all individual returns is on the cusp of finally being turned on into a modern solution, and that is coming after this filing season,” Werfel said. “And what we’ll be able to describe to you and the American people and your constituents is how that will impact them with more real-time information, faster processing.”

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.