Larry's Tax Law

Overview of the Interim Final Rule 

The IFR revises the definition of “reporting company” to narrow the field of businesses and persons that must report beneficial ownership information to FinCEN under the CTA.  At the ten-thousand-foot level, the IFR eliminates the reporting requirement for U.S. businesses and U.S. persons, leaving “foreign reporting companies” standing alone in the scope of the CTA.  Also, the IFR extends the reporting deadline for foreign reporting companies for thirty (30) days from the date of publication of the IFR. 

Breaking Down the Interim Final Rule       

1. The IFR exempts domestic reporting companies and their beneficial owners from registering and reporting beneficial ownership information under the CTA. For this purpose, in general, a domestic company is a corporation, limited liability company or other entity “created by filing a document with a secretary of state or similar office under the law of a State or Indian tribe.”
2. The IFR retains the definition of foreign reporting company to mean any entity formed under the law of a foreign country that has registered to do business in a U.S. state or a tribal jurisdiction.
3. With respect to foreign reporting companies, the IFR retains the requirement that these entities register and comply with the CTA. The IFR states that the rationale for preserving this requirement is as follows:
   
   “Foreign reporting companies, however, present heightened national security and illicit finance risks and different concerns about regulatory burdens. Congress, through certain provisions in the CTA, recognized these heightened concerns about national security and illicit finance risks posed by foreign ownership or foreign control of reporting companies. Congress thus limited certain CTA exemptions to companies that are exclusively domestic.”  
   
   
4. The IFR exempts the reporting of beneficial ownership information of U.S. persons who are beneficial owners of foreign reporting companies. Accordingly, foreign reporting companies that only have beneficial owners that are U.S. persons are exempt from the requirement to report information relative to any beneficial owners, but it appears they still must register with FinCEN.  Likewise, foreign reporting companies that have beneficial owners that are U.S. persons and beneficial owners that are foreign persons only must report information relative to the foreign beneficial owners.
5. Strangely, it appears under the IFR that companies formed in the United States that have foreign beneficial owners are not required to register and report beneficial ownership information under the CTA relative to the foreign owners.
6. Because the IFR does not impose any new obligations, pursuant to 5 U.S.C. 553(d)(1), it is effective upon publication.

Conclusion

The IFR brings a bit of good news for domestic reporting companies and their beneficial owners.  Likewise, the IFR brings good news for U.S. persons that are beneficial owners of foreign reporting companies.   

Foreign reporting companies are still subject to the CTA and its reporting obligations.  These companies, however, have an extended reporting deadline that appears to be April 20, 2025. 

Without debate, the IFR greatly narrows the reporting obligations under the CTA.  Is the CTA finally saga over?  I am hopeful that this long and scary nightmare is over. 

However, we should not ignore the challenge raised by Senators Sheldon Whitehouse (D - Rhode Island) and Charles E. Grassley (R - Iowa) on March 10, 2025, when they questioned whether the Treasury has the legal authority to write rules that require the selective enforcement of the CTA.  Time will tell whether this challenge will be pursued judicially or legislatively. 

That was a long way of saying that, for most companies, the CTA should no longer be a concern.  Hopefully, I can go back to enjoying the rest of the real “March Madness.”