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Another Transparency Obligation: The FinCEN Beneficial Ownership Information Reporting Requirements

April 21, 2024

BY KATHRYN HICKNER, ESQ., Brennan, Manna & Diamond, LLC, Cleveland, OH

Many physician practices and healthcare businesses are facing a new set of federal transparency requirements that require action now. The U.S. Department of Treasury Financial Crimes Enforcement Network (FinCEN) Beneficial Ownership Information Reporting Requirements (the Rule), which was promulgated pursuant to the 2021 bipartisan Corporate Transparency Act, is intended to help curb illegal finance and other impermissible activity in the United States. 

Healthcare stakeholders who are already experiencing burnout from operating in a heavily regulated industry and a punitive enforcement environment are not thrilled to add one more task to their administrative “to do” list. The good news is that the government has aimed to ensure that compliance is “simple, secure and free of charge.” Also, stakeholders will be comforted by FinCEN’s abundant FAQs and other helpful materials

The goal of this article is to provide a basic overview of the Rule and address some commonly asked questions.

REPORTING COMPANIES AND EXEMPT ENTITIES 

There are two types of reporting companies: “domestic reporting companies” and “foreign reporting companies.” Domestic reporting companies include corporations, LLCs and other similar entities that are created by filing a document with a secretary of state or any similar state office. Foreign reporting companies include entities formed under foreign country laws that are registered to do business in the United States. 

That being said, an entity that otherwise satisfies the definition of a reporting company does not need to report to FinCEN under the Rule if they satisfy one of the potential exceptions. There are twenty-three exceptions afforded. Briefly referenced, these exceptions are intended for the following entities: (a) securities reporting issuer, (b) governmental authority, (c) bank, (d) credit union, (e) depository institution holding company, (f) money services business, (g) broker or dealer in securities, (h) securities exchange or clearing agency, (i) other Exchange Act registered entity, (j) investment company or investment adviser, (k) venture capital fund adviser, (l) insurance company, (m) state-licensed insurance producer, (n) Commodity Exchange Act registered entity, (o) accounting firm, (p) public utility, (q) financial market utility, (r) pooled investment vehicle, (s) tax-exempt entity, (t) entity assisting a tax-exempt entity, (u) large operating company, (v) subsidiary of certain exempt entities, and (w) inactive entity. In order to rely upon any of these exceptions, an entity must satisfy numerous specific requirements that are beyond the scope of this article. 

The most relevant exceptions for many physician practices and other healthcare organizations are typically the tax-exempt entity and the large operating company exceptions. Broadly summarized and subject to some nuances, in order to satisfy the large operating company exceptions, the entity must employ more than 20 full time employees in the United States, operate or have a physical presence in the United States and have filed a federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.

INFORMATION TO BE REPORTED

Each reporting entity must share basic information about itself (e.g., name and address). It must also share the following information about each beneficial owner: (a) name; (b) date of birth; (c) address; and (d) the identifying number and issuer from either a nonexpired U.S. driver’s license, a nonexpired U.S. passport, or a non-expired identification document issued by a State (including a U.S. territory or possession), local government, or Indian tribe. If none of those documents exist, a non-expired foreign passport can be used. For purposes of this requirement, a “beneficial owner” is generally an individual who owns or controls at least 25 percent of a company or has substantial control over the company. In addition, companies created on or after January 1, 2024 must also submit information about company applicants. Generally speaking, “company applicants’ ‘ are those individuals who file or are responsible for filing the company’s formation document. 

FinCEN has published helpful guidance that clarifies who is and who is not a “beneficial owner” or a “company applicant“ and what type of information needs to be published about each individual. 

Additional FinCEN regulations (sometimes referred to as the Access Rule) have been promulgated to protect the security of the information reported under the Rule. These regulations will become effective on February 20, 2024. These regulations are designed to protect the confidentiality of the information while also permitting law enforcement and national security agencies to use the information to address money laundering, terrorist financing, tax fraud and other illicit activity. In general, the regulations provide that the reported information can only be shared with governmental agencies, regulators and financial institutions. Additional information about those safeguards can be found in FinCEN guidance

TIMING REQUIREMENTS 

All existing physician practices, healthcare businesses and others that are required to make a beneficial ownership report under the Rule will need to file their initial reports this year. FinCEN began accepting reports on January 1, 2024 and has published guidance on how to complete the process. 

The deadline differs based upon when the entity was organized. For those that were in existence prior to January 1, 2024, they have a little more time before action is necessary—their deadline is January 1, 2025. For those companies that are organized or registered to do business during 2024, they must file a report within 90 days after receiving actual or public notice that the company has been created or registered. Those that are formed after January 1, 2025 will only have 30 days from actual or public notice that the company has been created or registered. 

In the event that an entity was previously exempt from the reporting requirement but no longer qualifies for the exemption, the entity is required to make a report within 30 days of the date when the exemption is no longer satisfied. 

In the event that there is a change in information about a reporting company or its beneficial owners in a report filed under the Rule, the company must file an update within 30 days. However, reporting companies are not required to file updates to personal information about a company applicant.

Note that the reports do not need to be updated annually. Rather, once the initial report is submitted, subsequent updates are not required unless the information needs to be corrected or has changed. 

REPERCUSSIONS OF NONCOMPLIANCE

In the event of willful failure to comply with the Rule’s reporting requirements, the entity, senior officials and individuals who withhold information preventing a complete and accurate filing, may each be subject to civil and criminal penalties. For noncompliant entities, this could include civil penalties of up to $500 for each day that the violation continues, or criminal penalties including imprisonment for up to (2) two years and/ or a fine of up to $10,000. 

PRACTICAL TAKE-AWAYS 

For those physician practices and other healthcare businesses that may need to comply, now is the time to reach out to your attorneys, CPAs and other advisors to assess whether your organization must comply and to obtain assistance doing so if necessary. Each entity may also want to review its governing documents to determine whether they adequately protect all involved in the event that a beneficial owner or company applicant is uncooperative with efforts to comply with the Rule. For those physician practices and other healthcare businesses that are in the process of selling their businesses, they should expect buyers to review compliance with the Rule during the diligence process.

Kathryn (Kate) Hickner, Esq. is an attorney at Brennan, Manna & Diamond, LLC, Cleveland, where she is a Partner in the firm’s national health law practice. Additional information regarding Kate’s background and experience can be found at https://www.bmdllc.com/team/kathryn-e-hickner.  She can be reached at kehickner@bmdllc.com.

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