Drone Businesses and FINCEN’s Beneficial Ownership Information

Update: This has been flopping back and forth. Currently, there is an injunction. On 12/26, the 5th Circuit Court of Appeals reinstated the trial courts nationwide preliminary injunction. It was originally declared unconstitutional and an injunction was issued by the United States District Court for the Eastern District of Texas, but then on 12/23/24, the United States Court of Appeals for the 5th Circuit granted the U.S. government’s motion to stay the district court’s injunction.  On 12/26, they removed the stay which put the injunction back in effect. The court explained,

“in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments, that part of the motions-panel order granting the Government’s motion to stay the district court’s preliminary injunction enjoining enforcement of the CTA and the Reporting Rule is VACATED. ” 

What now? The law is currently stopped while the 5th Circuit rules on whether it is legal or not.

The appeal to the 5th Circuit is expedited for the next available oral argument panel.  The 5th Circuit will then do a final ruling. They basically just removed the injunction that the district court put into place WHILE the appeal is still pending before the 5th Circuit.  Will the 5th Circuit issue its ruling by January 1st?  I don’t know.

The National Federation of Independent Business said they are going to appeal this stay. There are two options here.

Option 1. Appeal the case to the full 5th Circuit. This ruling is only by 3 judges. You can petition for rehearing by the entire 5th Circuit. That means ALL of the judges. This doesn’t happen alot. Why?  Here is what the 5th Circuit’s rules say:

[The attorneys] “are reminded that in every case the duty of counsel is fully discharged without filing a petition for rehearing en banc unless the case meets the rigid standards of FED. R. APP. P. 40(b)(2)(A)-(D). As is noted in FED. R. APP. P.40(g) and 40(d), en banc hearing or rehearing is not favored. Among the reasons is that each request for en banc consideration must be studied by every active judge of the court and is a serious call on limited judicial resources. Counsel have a duty to thecourt commensurate with that owed their clients to read with attention and observe with restraint the standards of FED. R. APP. P. 40(b)(2). The court takes the view that, given the extraordinary nature of petitions for en banc consideration, it is fully justified in imposing sanctions on its own initiative under, inter alia, FED. R. APP. P. 38 and 28 U.S.C. § 1927, upon the person whosigned the petitions, therepresented party,or both, for manifest abuse of the procedure.” (Emphasis mine).

Basically, the attorney AND the petitioner can both get sanctioned.

Option 2. Appeal to the United States Supreme Court.

The deadlines have also been updated. FINCEN published on its website:

In light of a December 23, 2024, federal Court of Appeals decision, reporting companies, except as indicated below, are once again required to file beneficial ownership information with FinCEN. However, because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect, we have extended the reporting deadline as follows:

• Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
• Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
• Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
• Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.
• Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.
• As indicated in the alert titled “Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)”, Plaintiffs in National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)—namely, Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024)—are not currently required to report their beneficial ownership information to FinCEN at this time.

On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), the U.S. District Court for the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction. On December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction enjoining the Corporate Transparency Act (CTA) entered in the case of Texas Top Cop Shop, Inc. v. Garland, pending the outcome of the Department of the Treasury’s ongoing appeal of the district court’s order. Texas Top Cop Shop is only one of several cases that have challenged the CTA pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional. For that reason, the Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024 and separately sought of stay of the injunction pending that appeal with the district court and the U.S. Court of Appeals for the Fifth Circuit.

There are other courts hearing cases right now on the Corporate Transparency Act, which might do something. Congress also might act as well.

While waiting, if you are interested in a beyond line of sight waiver for aerial data collection, Part 137 spraying, or any other special type of approval, contact me! :) We just recently obtained a BVLOS waiver for nationwide wide ops, lasting 4 years, without visual observers for multiple drones.

Background

In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. This law creates a new beneficial ownership information (BOI) reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.

After January 1, 2024, you are required to report. A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report. From page 2 of BOI FAQ PDF,

“A reporting company created or registered on or after January 1, 2024, and before January 1, 2025, will have 90 calendar days after receiving notice of the company’s creation or registration to file its initial BOI report. This 90-calendar day deadline runs from the time the company receives actual notice that its creation or registration is effective, or after a secretary of state or similar office first provides public notice of its creation or registration, whichever is earlier. Reporting companies created or registered on or after January 1, 2025, will have 30 calendar days from actual or public notice that the company’s creation or registration is effective to file their initial BOI reports with FinCEN.”

Willful violation of the BOI reporting may be subject to civil penalties up to $500 per day that the violation continues and criminal penalties of up to 2 years in prison and a $10,000 fine. Individuals and businesses can both be liable for willful violations.

IMPORTANT. On March 1, 2024, a judge for the U.S. District Court of the Northern District of Alabama granted a motion for summary judgement for the National Small Business Association in its lawsuit against the law. The judge declared the law to be unconstitutional and enjoined the Treasury Department from enforcing the law.  Here is the opinion. 

Reporting

There is no cost to file.  You file here. https://www.fincen.gov/boi

There is no annual reporting requirement. You must file updated or corrected reports when things change.

Who Must Report?

Who must report?  From page 4 of BOI FAQ PDF,

“Companies required to report are called reporting companies. There are two types of reporting companies:
• Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.
• Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.”

Note that there are 23 exemptions from this reporting:

1. Securities reporting issuer
2. Governmental authority
3. Bank
4. Credit union
5. Depository institution holding company
6. Money services business
7. Broker or dealer in securities
8. Securities exchange or clearing agency
9. Other Exchange Act registered entity
10. Investment company or investment adviser
11. Venture capital fund adviser
12. Insurance company
13. State-licensed insurance producer
14. Commodity Exchange Act registered entity
15. Accounting firm
16. Public utility
17. Financial market utility
18. Pooled investment vehicle
19. Tax-exempt entity
20. Entity assisting a tax-exempt entity
21. Large operating company
22. Subsidiary of certain exempt entities
23. Inactive entity

I’m just a sole proprietor using my drone to make some money. Do I have to report?  From page 8 of BOI FAQ PDF,

“Is a sole proprietorship a reporting company?
No, unless a sole proprietorship was created (or, if a foreign sole proprietorship, registered to do business) in the United States by filing a document with a secretary of state or similar office. An entity is a reporting company only if it was created (or, if a foreign company, registered to do business) in the United States by filing such a document. Filing a document with a government agency to obtain (1) an IRS employer identification number, (2) a fictitious business name, or (3) a professional or occupational license does not create a new entity, and therefore does not make a sole proprietorship filing such a document a reporting company.”

Report What?

You have to report beneficial owners. From page 8 of BOI FAQ PDF, “A beneficial owner is an individual who either directly or indirectly: (1) exercises substantial control (see Question D.2) over the reporting company, or (2) owns or controls at least 25% of the reporting company’s ownership interests.”

Substantial Control

From page 8 of BOI FAQ PDF,

“An individual can exercise substantial control over a reporting company in four different ways. If the individual falls into any of the categories below, the individual is exercising substantial control:
• The individual is a senior officer (the company’s president, chief financial officer, general counsel, chief executive office, chief operating officer, or any other officer who performs a similar function).
• The individual has authority to appoint or remove certain officers or a majority of directors (or similar body) of the reporting company.
• The individual is an important decision-maker for the reporting company. See Question D.3 for more information.
• The individual has any other form of substantial control over the reporting company as explained further in FinCEN’s Small Entity Compliance Guide (see Chapter 2.1, “What is substantial control?”).”

Chapter 2.1’s table from BOI Small Compliance Guide says,

“[a]ny individual who directs, determines, or has substantial influence over important decisions made by the reporting company, including decisions regarding the reporting company’s:

1. Business, such as

• Nature, scope, and attributes of the business.
• The selection or termination of business lines or ventures, or geographic focus
• The entry into or termination, or the fulfillment or non-fullfillment, or signifcant contracts

2. Finances, such as:

• Sales, lease, mortgage, or other transfer of any principal assets
• Majori expenditures or investments, issuances of any equity, incurrence of any significant debt, or approval of the operating budget
• Compensation schemes and incentive programs for senior officers

3. Structure, such as:

• Reoganrization, dissolution, or merger
• Amendments of any substantial governance documents of the reporting company, including the articles of incorporation or similar formation documents, bylaws, and significant policies or procedures”

If you don’t fall into one of those 3, BOI has a catchall, “any other form of substantial control over the reporting company.”

Exceptions

There are exceptions for who qualifies as a beneficial owner.

• Minor child. But there are certain requirements. See BOI Small Compliance Guide Section 2.4
• Nominee, intermediary, custodian, or agent
• Employee (if they meet all 3 criteria from BOI Small Compliance Guide Section 2.).
• Inheritor
• Creditor

What Aviation Positions Have Substantial Control?

I hired Rupprecht Law to obtain some exotic drone waivers for us. Is Rupprecht Law a beneficial owner?

From page 12 of BOI FAQ PDF,

“[L]awyers generally do not qualify as beneficial owners, but that may depend on the work being performed.

Accountants and lawyers who provide general accounting or legal services are not considered beneficial owners because ordinary, arms-length advisory or other third-party professional services to a reporting company are not considered to be “substantial control” (see Question D.2). In addition, a lawyer or accountant who is designated as an agent of the reporting company may qualify for the “nominee, intermediary, custodian, or agent” exception from the beneficial owner definition. However, an individual who holds the position of general counsel in a reporting company is a “senior officer” of that company and is therefore a beneficial owner FinCEN’s Small Entity Compliance Guide includes a checklist to help determine whether an individual qualifies for an exception to the beneficial owner definition.”

I’m a Part 137 drone spraying operation, I have a Chief Supervisor. Am I considered a beneficial owner?

The word Chief Supervisor points out the person does supervision. The exemptions also require the Part 137 operating to do certain things. Most operations are really just pieces of paper.  LLCs and corporations are just pieces of paper. They can’t do anything. The Chief Supervisor is the one who has to do things.  The best thing to do is look at your exemption and  your operations manual to see if the Chief Supervisor does have substantial control.

I have a Part 107 waiver or Part 107 authorization, and I’m the person responsible listed on the document. Am I considered a beneficial owner?

If you go to the FAA’s Waiver Application Instructions, the FAA says,

“The Responsible Party information is prepopulated from the Part 107 Account Details. The Responsible Party is the official holder of the waiver.
The Responsible Party—

• Is responsible for the safe conduct of the operation and for the strict observanceof the terms and provisions contained in the waiver.

• Is responsible for ensuring the Remote Pilot in Command (RPIC), manipulators of the controls, and Visual Observer (VO), if one is used, are—

 Informed of, and observe, the terms and provisions in the waiver and of the requirement for strict observance of those terms and provisions; and

 Familiar with the regulations codified at 14 CFR part 107.

• Should be a person who has ongoing knowledge of the operations of the sUAS under the waiver.

• Is not required to be the holder of a remote pilot certificate with an sUAS rating (RPIC).

• May be the representative of an organization (enter name of organization in the appropriate space).

• Is responsible for maintaining information, such as a list of pilots and the make/model of all aircraft operating under the terms of the waiver, and presenting the information to the FAA upon request.

• Is responsible for maintaining records or other information required to demonstrate compliance with the special provisions in the waiver.”

If you also pull a granted 107 waivers, you’ll see the FAA frequently includes specific provisions JUST FOR the responsible person. I’ll pull some provisions here from a 400+ waiver.

“1. The Responsible Person listed on the Waiver is responsible to the FAA for the safe conduct of the operations. Prior to conducting operations that are the subject of this Waiver, the Responsible Person:
a. Must ensure the remote PIC, manipulators of the controls, and VO(s) are informed of the terms and provisions of this Waiver and strictly observe the terms and provisions herein;
b. Must ensure the remote PIC, manipulators of the controls, and VO(s) are informed and familiar with part 107 regulations; and
c. Evidence of the above (a and b) must be documented and must be presented for inspection upon request from the Administrator or an authorized representative;
….

12. The Responsible Person must file a Notice to Air Mission (NOTAM) no more than 72 hours and no less than 24 hours prior to operating under this waiver. A NOTAM can be filed by calling 1-877-487-6867 (1-877-4-US-NTMS) or online at https://www.1800wxbrief.com/Website/login#!/, and must include the location and/or operating area, altitude, and time and nature of the activity. The Responsible Person must verify the NOTAM has been issued prior to conducting waivered operations;”

Helpful Resources

I’m guessing you will have many questions. These two documents answer MANY MANY more issues not addressed here.

• Beneficial Ownership Information Reporting Frequently Asked Questions
• Small Entity Compliance Guide

Jonathan Rupprecht

Aviation Attorney. FAA Certificated Commercial Pilot and Flight Instructor (CFI/CFII). Contributor at Forbes.com for Aerospace and Defense.