Another burden the federal government wants to impose in the name of finding tax cheaters is the requirement to report who owns your business. While many businesses are already required to report this type of information (financial firms, large corporations), this law imposes it on the rest of us - mainly small businesses who have their business registered with the state.
One of the clarifications is when one business owns part of another business. (They are trying to make it harder to hide money by passing it through a bunch of shell companies - like certain politicians.)
The Treasury Department and FinCEN have issued the final regulations on using an entity FinCEN identifier to assist with beneficial ownership information (BOI) reporting. A FinCEN identifier is a unique identifying number that FinCEN may issue to:
- Individuals who have provided FinCEN with their BOI
- Reporting companies that have filed initial BOI reports.
These numbers are referred to as individual FinCEN identifiers and entity FinCEN identifiers respectively. The final rule for individual FinCEN identifiers was issued earlier this year. Under the final rule for entities, a reporting company may report another entity’s FinCEN identifier and full legal name in lieu of the other entity’s BOI if:
- The other entity has obtained a FinCEN identifier and provided the number to the reporting company,
- An individual is a beneficial owner of the reporting company by virtue of the individual’s ownership interest in the other entity, and
- The beneficial owners of the other entity and of the reporting company are the same individuals.
Example: Grant, LLC has one member, Garfield, LLC. Garfield, LLC has two members: Jamie (50%) and Art (50%). Jamie and Art are indirect beneficial owners of Grant. Both LLCs are required to report BOI to FinCEN. Garfield, LLC completes its initial BOI report, obtains a FinCEN identifier, and provides the number to Grant.
In this situation, Grant, LLC may use the entity FinCEN identifier:
- Garfield, LLC has obtained the identifier and provided the number to Grant, LLC.
- Jamie and Art are beneficial owners of Grant, LLC by virtue of their ownership interest in Garfield, LLC.
- The beneficial owners of both LLCs are the same individuals.
Therefore, when Grant, LLC completes its BOI report it can list the Garfield, LLC entity FinCEN identifier along with the legal name of the company instead of providing individual information about Jamie and Art.
FinCEN does not require owners and entities to obtain FinCEN identifiers but use of the numbers can help simplify or streamline BOI reporting.