The Corporate Transparency Act (CTA) requires certain entities (called reporting companies) to file a beneficial ownership information (BOI) report with a bureau of the Department of Treasury called the Financial Crimes Enforcement Network (FinCEN).
It also requires FinCEN to maintain a database containing personal identifying information about all of a reporting company’s beneficial owners and, for some companies, their company applicants (as those terms are defined in FinCEN’s reporting rule).
There are two ways that personal information can be provided to FinCEN for its BOI database. One way is if the BOI report sets forth each piece of required personal information. The other way is if the beneficial owner or company applicant provides that information directly to FinCEN in an application for a FinCEN Identifier (also known as a FinCEN ID). In addition, an entity that is a reporting company can obtain an entity FinCEN ID which can be used in certain limited circumstances by another reporting company in lieu of providing the information about the reporting company’s beneficial owners.
Read this article to learn more about FinCEN identifiers, including what they are, how they are used, the pros and cons of obtaining a FinCEN ID, and how a FinCEN ID is obtained.
What is a FinCEN identifier?
A FinCEN identifier is a unique 12-digit identifying number that FinCEN will issue to an individual beneficial owner or company applicant or to a reporting company upon request after the individual or reporting company provides the required information to FinCEN. Each FinCEN identifier is specific to the individual or reporting company, and only one can be obtained for each. A FinCEN ID is not a requirement for BOI reporting. An individual or reporting company may obtain one but does not have to.
An individual can obtain a FinCEN ID by filing an application with FinCEN. In that application the beneficial owner or company applicant will provide the required personal information, which includes the individual’s name, date of birth, address, unique number from a document such as a passport or driver’s license, and an image of the document. When a beneficial owner or company applicant obtains a FinCEN ID, that individual can provide the FinCEN ID to the reporting company and the reporting company can report the FinCEN ID instead of each piece of personal information.
An entity that is a reporting company can also obtain a FinCEN ID, although an entity’s FinCEN ID has a more limited use than an individual’s FinCEN ID. The entity can request a FinCEN ID when filing its initial BOI report or thereafter in an updated BOI report. The entity must provide all the required information that a reporting company must report to FinCEN when it requests its FinCEN ID.
What are the reasons for using a FinCEN ID?
FinCEN ID of a beneficial owner or company applicant – Administrative efficiency and privacy concerns are the main reasons an individual may choose to use a FinCEN ID. It is particularly useful for an individual who is a beneficial owner or company applicant for a lot of reporting companies. Instead of having to provide their personal information to a lot of companies they only have to provide their FinCEN ID. There may also be an additional layer of privacy and protection for individuals in initially providing the required personal information once to FinCEN in the FinCEN ID application, rather than their submitting that information multiple times to numerous reporting entities.
It can also streamline and simplify the BOI reporting process for reporting companies in that they only have to report the FinCEN ID instead of the personal information of their beneficial owners and company applicants.
FinCEN ID of a reporting company - There is a special reporting rule in which a reporting company can choose to set forth in its BOI report another reporting company’s FinCEN ID and full legal name instead of its beneficial owners’ personal information. In such a case the reporting company with the FinCEN ID is generally referred to as the “intermediate entity” to distinguish it from the reporting company that is filing the BOI report. Three conditions must be met for this special reporting rule to apply:
- The intermediate entity has obtained a FinCEN identifier and provided it to the reporting company,
- The beneficial owner(s) of the reporting company hold interests in the reporting company through ownership interests in the intermediate entity, and
- The beneficial owners of the reporting company and the intermediate entity are the same individuals.
Although any reporting company may request a FinCEN ID, it is most useful for a reporting company whose beneficial owners hold interests in another reporting company through their ownership of the reporting company requesting the FinCEN ID and the beneficial owners of both reporting companies are the same. There may be advantages of administrative efficiency and additional privacy and risk protection in that the personal information of the beneficial owners was already provided to FinCEN when the reporting company filed its BOI report and requested a FinCEN ID and therefore does not have to be repeated in the BOI reports of subsequent reporting companies where the special reporting rule applies.