The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a final rule that clarifies the public utility exemption within the beneficial ownership information reporting rule. The final rule was published in the Federal Register on 18 October 2024 and went into effect immediately upon publication. This rule exempts certain telecommunications service providers from the reporting requirements.
Supplementary Information:
1. Background
On September 30, 2022, FinCEN issued the beneficial ownership information (BOI) reporting rule (“Reporting Rule”). That rule implemented the reporting requirements of section 6403 of the Corporate Transparency Act (CTA), enacted into law as part of the National Defense Authorization Act of Fiscal Year 2021 (NDAA).
The CTA requires certain types of domestic and foreign entities, called “reporting companies,” to submit information about “beneficial owners” to FinCEN. The CTA generally defines a reporting company as a corporation, limited liability company, or other similar entity that is created or registered to do business in the United States by the filing of a document with a secretary of state or similar office under the law of a State or Indian Tribe. The CTA exempts twenty-three categories of entities from that definition. One such exemption is for “a public utility that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.”
In the Reporting Rule, FinCEN gave precision to the CTA’s public utility exemption by referring to the Internal Revenue Code, which defines a regulated public utility for tax purposes. The Reporting Rule states that the exemption applies to “[a]ny entity that is a regulated public utility as defined in 26 U.S.C. 7701(a)(33)(A) that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.”
While the CTA’s public utility exemption mentions four types of public utilities (telecommunications services, electrical power, natural gas, and water and sewer services), questions have arisen about the application of the exemption to providers of telecommunications services because the specific provision cross-referenced in the Internal
Revenue Code definition—subparagraph (A) of 26 U.S.C. 7701(a)(33)—is only part of the definition of a regulated public utility that provides telecommunications services. Unlike covered providers of electrical power, natural gas, and water and sewer services, which are defined in subparagraph (A), covered providers of telecommunications services are defined by operation of subparagraphs (D) and (A) together. Subparagraph (D) specifies that a regulated public utility includes “a corporation engaged in the furnishing or sale of telephone or telegraph service, if the rates for such furnishing or sale meet the requirements of subparagraph (A),” and subparagraph (A) sets forth those requirements with regard to rates. FinCEN intended to cross-reference both of these provisions in the Reporting Rule’s public utility exemption but inadvertently omitted a reference to subparagraph (D) in the final rule.
On June 10, 2024, FinCEN issued guidance in the form of a Frequently Asked Question clarifying that the CTA’s exemption for public utilities includes a corporation engaged in the furnishing or sale of telephone or telegraph services if the rates for such furnishing or sale meet the requirements of 26 U.S.C. 7701(a)(33)(A), as specified in 26 U.S.C. 7701(a)(33)(D).
2. The Final Rule
In this final rule, FinCEN is amending its regulations, consistent with its June 10, 2024 guidance, to make clear that certain telecommunications services providers are exempt from reporting requirements under the CTA. To avoid any confusion arising from the cross-reference to subparagraph (A), FinCEN is adding a cross-reference to subparagraph (D). As amended, the regulation will provide as follows (new language in bold italics): “(xvi) Public utility.
Any entity that is a regulated public utility as defined in 26 U.S.C. 7701(a)(33)(A) or (D) that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.” This amendment will more clearly conform the regulation’s language to the scope of the CTA’s exemption, making it easier for covered entities to understand their compliance obligations.
