New FinCEN Guidance. In new regulatory guidance issued on March 21, 2025 (the "Interim Final Rule"), the U.S. Department of Treasury (FinCEN) limits the Corporate Transparency Act ("CTA") solely to foreign entities previously defined as "foreign reporting companies" and non-U.S. persons who are beneficial owners of such entities. In restricting the CTA's scope to foreign entities and non-U.S. persons, the Interim Final Rule also explicitly exempts any "domestic entity" and any "U.S. person" (as defined under the Internal Revenue Code).
Under the Interim Final Rule:
· A "reporting company" is any entity created in a foreign country, if and when the foreign entity registers to do business in the United States (subject to the "large operating company" or other available exemption).
· A "domestic entity" is any corporation, limited liability company or other entity created in the United States through the filing of a state-level organizational document, regardless of the nationality of any management personnel, equity owner or other person.
Because "domestic" status depends solely on where an entity is formed, an entity remains "domestic" even if a non-U.S. person would otherwise be treated as a beneficial owner.
· Example: A single foreign individual is the sole member of a Delaware limited liability company treated as a disregarded entity for federal income tax purposes. Solely on the basis of its formation in Delaware, the limited liability company qualifies as a domestic entity. Therefore, neither the limited liability company nor the foreign individual is required to file a beneficial ownership interest report or otherwise provide information to FinCEN with respect to the limited liability company.
New Filing Requirements for Reporting Companies (Foreign Only). In general, a foreign entity that is reporting company (as newly-defined and not otherwise exempt) must comply with the revised CTA, no later than 30 days after the later of (a) the date on which the Interim Final Rule is published in the Federal Register (pending as of the date hereof)(the "Publication Date") and (b) the date on which the foreign entity became a reporting company (by registering to do business in the United States).
· U.S. Person Exemption. On any required beneficial ownership interest report, a reporting company reports only non-U.S. beneficial owners. A U.S. person who is a beneficial owner of a reporting company is exempt from the CTA and is not required to provide any information to the reporting company.
Effective Date. The Interim Final Rule states that it is effective on the Publication Date. However, in a website alert, FinCEN announced that it will apply all exemptions and deadline extensions as of March 21, 2025 (the current filing deadline), closing any gap between the pending Publication Date and the current filing deadline and thereby preventing reporting companies and now-exempt domestic entities from falling into technical non-compliance before the Publication Date.
The Last Word on the CTA? By providing explicit exemptions for domestic entities and U.S. persons, FinCEN has provided welcome clarity. Because the Interim Final Rule's changes apply immediately and effectively retroactively, FinCEN has removed the threat of penalties for any prior non-compliance with now-superseded regulatory guidance (e.g., a newly-created entity that was a reporting company under prior guidance and inadvertently missed the 30 - or 90 - day deadline for an initial filing). In addition, FinCEN appears to have abandoned its previously-announced strategy of providing de facto exemptions through an unconventional policy of penalty non-enforcement, which would have created the potential for legal "foot faults" under loan and other transactional documents and in legal opinions.
However, because nothing is ever quite final with the CTA, FinCEN is soliciting comments on the "approach taken in this interim final rule" and intends to issue a "final rule" by the end of the year. In a letter dated March 10, 2025, to the Secretary of the Treasury, Senators Grassley and Whitehouse expressed their bipartisan support for the CTA in its unrevised form and inquired as to Treasury's compliance with the CTA's rulemaking procedure for making revisions. So, until comments are complete and the final rule is issued, monitoring for new CTA developments remains necessary.
