What You Need to Know About THE CORPORATE TRANSPARENCY ACT

January 23, 2024

BUSINESS PLANNING

A new federal law, called the Corporate Transparency Act (CTA), will impact almost all LLCs, corporations, limited partnerships, and other closely held entities. Aside from any such entities that you may have, this will also affect trusts that own any such entities. The law is effective January 1, 2024.

Why the new law?

The purpose of the CTA is to create a national database which identifies the human beings who are owners or control persons of companies in the U.S. Congress intends to help law enforcement as part of an increasing effort to combat money-laundering, terrorism, tax evasion, and other financial crimes.

Who is implementing the law?

The Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United Stated Treasury Department (and not part of the IRS), is creating and maintaining the database. Currently the database will only be available to a variety of agencies and not the public, although the exact scope could change.

What are the consequences of failing to comply?

Civil penalties of up to $500 a day (capped at $10,000) and possible imprisonment of up to two years for willfully providing false or fraudulent beneficial ownership information or failing to report or update.

What is required?

All Reporting Companies will be required to file reports with FinCEN that provide certain information regarding the companies and Beneficial Owners of the companies – the humans behind the companies.

Reporting Company

a corporation, LLC, or similar entity that is created (or a similar foreign entity registered to do business in the U.S.) by the filing of a document with a secretary of state or a similar office under State or Indian Tribal law.

Beneficial Owner

an individual who, either directly or indirectly, (1) owns or controls at least 25% of the ownership interests or (2) exercises Substantial Control over the entity.

Substantial Control

any individual who falls into any of the following categories:

1. Senior Officer – President, CFO, General Counsel, CEO, COO, or similar.

2. Authority to Appoint or Remove – any Senior Officer or a majority of the Board.

3. Important Decision-Maker –about the company’s business, finances, or structure.

4. Any other form of substantial control – including a Trustee.

Will this affect me?

You may be responsible for filing reports if you or a Trust connected to you has substantial control or 25% or more ownership of a reporting company such as:

  • a closely held entity,
  • limited partnership (including a Family Limited Partnership), or
  • an LLC (even if designed to hold only real estate or ignored for federal income tax purposes).

When is reporting due?

  • Entities that already exist before January 1, 2024 – initial reports are due January 1, 2025.
  • Entities created between January 1, 2024 – December 21, 2024 – after an extension approved in late November 2023, initial reports are due 90 days from the creation of the entity.
  • Entities created on or after January 1, 2025 – initial reports are due 30 days from the creation of the entity.
  • Any changes to information are due 30 days after the change: marriage that changes name, change of address, a minor coming of age, etc.

As of now, there are no extensions available.

What information will I need to disclose?

A Reporting Company must report its

  • name (including d/b/a),
  • business address,
  • jurisdiction of formation, and
  • unique identification number.

Each Beneficial Owner must report his, her or its

  • legal name,
  • date of birth,
  • residential address for beneficial owners (not a P.O Box),
  • unique identifying number from an acceptable identification document or
  • FinCEN identifier – identification document scan filed with the report.

What should I do?

Begin now to assemble a list of every privately held entity that you own an interest in or exert control over as well as the required information.

This is just a summary and cannot address every situation. If you have any questions about whether your trusts, partnerships, LLC, or other business entities are affected by this law, contact us.