Overview of the Corporate Transparency Act

Beginning January 1, 2024, the Corporate Transparency Act (the “CTA”) will impose new reporting and disclosure requirements on over 30 million existing business entities, as well as many newly formed entities operating in the United States.  The CTA was signed into law on January 1, 2022, and is aimed at enhancing transparency and preventing money laundering, tax evasion, and other illicit activities involving shell companies. The CTA requires certain entities, referred to as “reporting companies,” to submit Beneficial Ownership Information (BOI) reports to the U.S. Treasury’s Financial Crimes and Enforcement Network (FinCEN). This article outlines the key provisions of the CTA, as well as steps to ensure compliance.

Key Points

Under the CTA, all entities formed or registered to do business in the United States will need to either (i) confirm they qualify for an exemption from the CTA’s reporting requirements, or (ii) timely submit a BOI report to FinCEN.

Who Must Comply?

All reporting companies must comply. Reporting companies are defined as domestic entities, such as corporations, limited liability companies, or any entity created under state or tribal laws, and foreign entities formed under the law of a foreign country but registered to do business in the U.S.

There are 23 listed exemptions. These exemptions include, among others:

(i)             Publicly traded companies, government agencies, banks, credit unions, investment advisors, insurance companies, and other entities that are subject to regulatory oversight.

(ii)           “Large operating companies,” which are entities that (1) have more than 20 full-time U.S. employees (not counting employees of affiliated entities), (2) federal tax return reported more $5 million in revenue from U.S. operations for the previous year, and (3) have an operating physical location in the U.S.

(iii)         Nonprofit entities, political organizations, and certain tax-exempt trusts.

Exempt entities have no obligations under the CTA.

Note:  Until a nonprofit entity receives an official determination letter from the Internal Revenue Service stating that it is tax-exempt under Section 501(c)(3) of the Internal Revenue Code, it would be best practice for the nonprofit entity to submit a BOI report to FinCEN. 

Filing Requirements

1.              All reporting companies must submit a BOI report to FinCEN that includes the following information:

(i)             The full legal name and business address of the reporting entity.

(ii)           The names, dates of birth, and addresses of each beneficial owner.

(iii)         An identification number (e.g., a driver’s license or passport) for each beneficial owner.

(iv)          A statement identifying the beneficial owner’s percentage of ownership.

(v)           The filing entity’s unique identifier, obtained upon registration with FinCEN.

2.              Entities formed after January 1, 2024, must report information about the “company’s applicant(s),” which includes a maximum of two individuals: (i) the individual who directly files the document creating or registering the entity in the U.S., and (ii) the individual primarily responsible for either directing or controlling the filing of the document by another.

Deadline for Filing

An entity created before January 1, 2024, must file its initial BOI report not later than January 1, 2025.  An entity created on or after January 1, 2024, must file a report within 30 calendar days of the date on which it receives actual or public notice that its creation has become effective.

Note:  Under proposed rule 31 CFR 1010, the filing deadline is subject to change from 30 to 90 days for entities created or registered on or after January 1, 2024.  Entities created or registered on or after January 1, 2025, would have 30 days.

Where to File

Reports must be submitted to FinCEN electronically through the FinCEN website (https://www.fincen.gov/). Detailed instructions and additional information can be found on the FinCEN website.

Responsibility for Compliance and Penalties

It is the responsibility of the entity’s officers, directors, or other individuals authorized to manage the entity to ensure compliance with the CTA. Failure to report accurate and timely information may result in both civil and criminal penalties (up to $10,000- and two-years’ imprisonment) for willfully providing false information, failing to provide complete information, or failing to update information.

Conclusion

Compliance with the Corporate Transparency Act is essential to avoid potential legal and financial consequences. Clients subject to the CTA should take prompt action to identify and report their beneficial owners to FinCEN. It is advisable to consult legal counsel to ensure proper compliance with the Act. Please do not hesitate to reach out if you have any questions or require further assistance with your compliance efforts.