Final Rule | Fraser Blog

Final Rule Issued for Corporate Transparency Act: What Businesses Need to Know

As we previously addressed in 2021, Congress passed the Corporate Transparency Act (“CTA”), which requires certain business entities to report the “beneficial ownership” of an entity to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCen”).

The CTA is intended to deter activity such as money laundering, financing terrorism, and tax fraud, among other things. Failure to disclose the necessary information may subject businesses to significant civil and criminal penalties.

On September 29, 2022, FinCEN issued its Final Rule, and a corresponding Fact Sheet. These rules set forth the requirements for certain businesses (“reporting companies”) to disclose information regarding the individuals who own or control the business (“beneficial owners”). The CTA is a complex statute, and non-compliance with its reporting requirements can subject businesses to significant penalties, so it’s important to consult with a business attorney to understand your business’s reporting obligations.

Here are some of the key takeaways from the Final Rule.

Who Must Report

The CTA applies to a “reporting company” which includes:

Domestic Company: a corporation, limited liability company (LLC), or any entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Foreign Company: a corporation, LLC, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.

Several types of entities are exempt from reporting requirements, including:

Companies with 20 or more full-time U.S. employees, more than $5 million in federal income tax revenue, and have an operating presence at a physical office within the United States;
Issuers registered with the Securities and Exchange Commission;
Banks, bank holding companies, savings and loan holding companies, credit unions, financial market utility entities, and money services businesses registered with FinCEN;
Registered Commodity Exchange Act entities, registered investment companies or investment advisers, broker-dealers, and registered venture capital fund advisers;
Insurance companies or state-licensed insurance producers;
Accounting firms;
Public utilities;
Certain pooled investment vehicles;
Tax-exempt entities or entities that exist solely to assist a tax-exempt entity; and
Certain inactive companies.

Defining Beneficial Owners

Under the Final Rule, a “beneficial owner” includes any individual who, directly or indirectly, either (i) exercises substantial control over a reporting company, or (ii) owns or controls at least 25 percent of the ownership interests of a reporting company.

Filing Beneficial Ownership Information Reports

The Final Rule requires that when filing beneficial ownership information reports with FinCEN, the reporting company must identify itself and report the following four pieces of information for each of its beneficial owners:

Full legal name,
birthdate,
residential address, and
a unique identifying number from either an unexpired passport, state identification document, or driver’s license, and an image of that document.

Timing for Reports

The effective date for the Final Rule is January 1, 2024. Reporting companies created or registered before January 1, 2024, will have one year from that date to file their initial reports, while reporting companies created or registered on or after January 1, 2024, will have 30 days after receiving notice of their creation or registration to file their initial reports. Furthermore, a reporting company will need to update their prior report within 30 days of any change to a beneficial owner’s information

What to do Next

The foregoing is a summary of some of the important provisions of the Final Rule. The CTA and Final Rule are lengthy and complex and there is much more to know. Businesses should consult with their attorney to understand their obligations.

This is a brief summary and does not constitute legal advice. For assistance, please contact Robert D. Burgee.

Robert D. Burgee is an attorney at Fraser Trebilcock with over a decade of experience counseling clients with a focus on corporate structures and compliance, licensing, contracts, regulatory compliance, mergers and acquisitions, and a host of other matters related to the operation of small and medium-sized businesses and non-profits. You can reach him at 517.377.0848 or at bburgee@fraserlawfirm.com.

New York Federal Court Strikes Down Key Provisions of FFRCA Final Rule

In response to a lawsuit by the State of New York, a New York federal district court judge struck down aspects of a U.S. Department of Labor (“DOL”) final rule (the “Rule”) providing guidance on interpretations of the Families First Coronavirus Response Act (FFCRA). The court’s ruling, which was made on August 3, 2020, strikes down the Rule’s “work availability” requirement, the “health care provider” definition, portions of the employer consent requirement for intermittent leave, and the advance documentation requirements for taking FFCRA leave.

It is unclear whether this decision applies only to New York or on a nationwide basis. An appeal of the decision to the U.S. Court of Appeals for the Second Circuit is expected.

Background

The FFCRA, which was enacted on March 18, 2020, requires employers with fewer than 500 employees to provide paid leave due to certain circumstances related to COVID-19 through two separate provisions: the Emergency Paid Sick Leave Act (“EPSLA”) and the Emergency Family and Medical Leave Expansion Act (“EFMLA”).

The EPSLA applies to virtually all private employers with fewer than 500 employees and to virtually all public agencies employing one or more employees. Under section 5102(a) of the EPSLA, employers shall provide employees with paid sick time if they are unable to work (or telework) due to a need for leave because:

The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
The employee has been advised by a health care provider to self-quarantine due to concerns relating to COVID-19;
The employee has COVID-19 symptoms and is seeking a medical diagnosis;
The employee is caring for an individual subject to quarantine or isolation or advised to self-quarantine as described in paragraphs (1) or (2) above;
The employee is caring for his/her child if the school or place of care has been closed or the child care provider is unavailable due to COVID-19 precautions; and
The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.

Pursuant to the EFMLEA, which is a temporary amendment to the Family and Medical Leave Act (FMLA), eligible employees (those employed for 30 calendar days or longer) receive up to 12 workweeks of leave to care for their child whose school or place of care has been closed, or whose childcare provider is unavailable, due to COVID-19 precautions.

On April 1, 2020, the DOL issued the Rule implementing and interpreting the FFCRA. On April 14, New York filed a complaint for declaratory and injunctive relief against the DOL and the Secretary of Labor in the U.S. District Court for the Southern District of New York, and moved for summary judgment.

Work Availability Requirement Under the FFCRA

The Rule clarified that employees are not entitled to paid leave under the FFCRA if their employers “do not have work” for them to do. This “work availability” requirement was significant because, as the district court explained, COVID-19 has caused the temporary shutdown or slowdown of many businesses nationwide, resulting in a decrease in work available to employees.

In its complaint, New York asserted that “[t]he Final Rule imposes a new ‘work availability’ requirement that permits employers to deny their workers emergency family leave or paid sick leave, with no statutory basis.” The DOL argued that the Rule is consistent with the statute because employees are not “unable to work (or telework)” (due to one of six reasons listed above) if their employer has no work available for them to perform.

The Court disagreed, concluding that the work availability requirement exceeded the DOL’s authority because it applied only to three of six qualifying reasons for EPSLA leave, which the court found inconsistent with the language of the FFCRA. The court also found the DOL’s “barebones explanation” for the work availability requirement to be “patently deficient,” particularly in light of its “enormously consequential” impact of narrowing the scope of the FFCRA.

Definition of “Health Care Provider”

The FFCRA permits employers to exclude a “health care provider or emergency responder” from paid leave benefits. New York argued that the Rule’s definition of a “health care provider” exceeds the DOL’s authority under the FFCRA. The DOL defined “health care providers” as employees of a broad group of employers, including, in part, anyone employed at “any doctor’s office, hospital, health care center, clinic, post-secondary educational institution offering health care instruction, medical school, local health department or agency, nursing facility, retirement facility, nursing home, home health care provider, any facility that performs laboratory or medical testing, pharmacy, or any similar institutions, Employer, or entity.”

The court determined that the FFCRA “unambiguously forecloses” the DOL’s definition. The court found the definition to be “vastly overbroad” because it included individuals whose roles bore “no nexus whatsoever” to the provision of healthcare services and “who were not even arguably necessary or relevant to the healthcare system’s vitality.”

Intermittent Leave Provisions

The Rule permits employees to take leave intermittently (i) upon agreement between the employer and employee and (ii) only for a subset of qualifying conditions. New York took issue with both aspects of the Rule. The court upheld the DOL’s limitation of leave to qualifying reasons that are not logically correlated with a higher risk of viral infection. However, the court determined that the DOL “utterly fails to explain why employer consent is required for the remaining qualifying conditions.” Therefore, the district court vacated the requirement for employer consent.

Documentation Requirements

New York also challenged the Rule’s requirement that employees submit to their employer, prior to taking FFCRA leave, documentation explaining their reason for leave, the duration of leave, and, to the extent relevant, the authority for the isolation or quarantine order qualifying them for leave.

The district court noted that the FFCRA contains notice requirements but no documentation requirement for taking leave. It concluded that the requirement that employees furnish documentation in advance of leave imposed different and more onerous standards inconsistent with the FFCRA’s unambiguous notice provisions. The district court stated: “The documentation requirements, to the extent they are a precondition to leave, cannot stand.”

Conclusion

As noted above, it is unclear whether this decision applies only to New York or has nationwide impact. We will continue to monitor and keep you informed as to further developments, which could include an appeal of the decision or new guidance being issued by DOL. If you have any questions about this case, or FFCRA issues more broadly, please contact your Fraser Trebilcock attorney.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Client Alert: CMS Issues Final Rule on Reporting and Return of Overpayments Under 60-Day Rule

On February 12, 2016, the Centers for Medicare & Medicaid Services (“CMS”) published a long-awaited Final Rule regarding Section 6402(a) of the Affordable Care Act—the so-called “60-day rule”. The 60-day rule outlines the obligation of providers and suppliers to report and return Medicare overpayments within 60 days of their “identification”. A provider or supplier who retains Medicare overpayments beyond the 60-day period faces the risk of False Claims Act (FCA) liability, Civil Monetary Penalties Law (CMPL) liability, and exclusion from federal health care programs.

Section 6402(a) of the Affordable Care Act added section 1128J(d) to the Social Security Act (“the Act”). Section 1128J(d) of the Act requires a Medicare or Medicaid provider or supplier to return and report an overpayment “by the later of: (A) the date which is 60 days after the date on which the overpayment was identified; or (B) the date any corresponding cost report is due, if applicable”.

Since Section 6402(a) of the ACA was enacted in 2010, there has been confusion about what it means to identify an overpayment for the purposes of starting the 60-day clock, how far back a provider or supplier must look back to identify an overpayment, and the obligations a provider or supplier has once it has identified an overpayment.

Under the Final Rule, the 60-day clock starts when a provider or supplier has identified an overpayment and defines “identified” as occurring when “the person has or should have, through the exercise of reasonable diligence, determined that the person has received an overpayment and quantified the amount of the overpayment. A person should have determined that the person received an overpayment if the person fails to exercise diligence and the person in fact received an overpayment”. CMS clarified in the Final Rule that the 60-day time period does not begin to run until after the reasonable diligence period is completed, and agreed with commentators that “part of identification is quantifying the amount, which requires a reasonably diligent investigation”.

The CMS also clarified that reasonable diligence means a timely, good faith investigation of credible information, which should take no longer than six months from the receipt of credible information, except under extraordinary circumstances.

The Final Rule recognizes that providers and suppliers must exercise reasonable diligence by being both proactive and reactive. Proactive reasonable diligence includes implementing compliance activities, conducted in good faith by qualified individuals, to monitor for the receipt of overpayments. Reactive reasonable diligence would include having qualified individuals undertaking investigations in a timely manner “in response to obtaining credible information of a potential overpayment”.

Providers and suppliers should understand that failure to initiate reasonable diligence efforts could start the running of the 60-day clock on the day the provider or supplier received credible information of a potential overpayment. Providers and suppliers should also recognize that failure to initiate reasonable diligence efforts with all deliberate speed after obtaining overpayment information could result in knowingly retaining an overpayment because the provider or supplier “acted in reckless disregard or deliberate ignorance of whether it received an overpayment”.

Under the Final Rule, the CMS finalized a 6-year lookback period rather than the 10-year lookback originally suggested by the Proposed Rule. Under the Final Rule, providers and suppliers must report and return overpayments identified “within 6 years of the date the overpayment was received”.

Other important provisions of the Final Rule:

Overpayments caused by errors or third parties outside of the provider’s or supplier’s control, including CMS system errors, are also subject to the 60-day time period. Therefore, providers and suppliers will need to ensure implemented compliance activities also monitor for overpayment errors from third parties outside the provider’s or supplier’s control.

To satisfy the obligation to report and return overpayments under the final rule, a provider or supplier must use “an applicable claims adjustment, credit balance, self-reported refund, or another appropriate process” to report and return overpayments.

The final rule goes into effect March 14, 2016, and applies to Medicare Part A and Part B provider and suppliers. An earlier Final Rule, published in May 2014 applies to overpayments under Medicare Parts C and D. No final rules has been published that addresses requirements for Medicaid and some states are developing their own requirements.

To find out more about the Final Rule from CMS and its impact on health care and your business, contact Fraser Trebilcock at 517.482.5800.