Congress enacted the Corporate Transparency Act (CTA) in 2020 as part of the U.S.’ efforts to combat money laundering and the financing of global terrorism. The CTA establishes uniform beneficial ownership information reporting requirements for certain types of corporations and limited liability companies. Companies that were formed before January 1, 2024 will have until January 1, 2025 to file their reports. The CTA authorizes the Financial Crimes Enforcement Network (FinCEN) to collect that information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and controls.
The filing requirements and other important information are summarized below.
Who Must Report?
The CTA broadly defines a reporting company to be any corporation, limited liability company, or similar entity that is created or registered to do business in the United States by filing documents with a secretary of state or a similar office of a U.S. state or tribal government.
More specifically:
- A domestic reporting company is 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.
- A foreign reporting company is 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.
Are There Any Exemptions?
The CTA exempts 23 types of entities from the definition of a “reporting company.” Essentially, if you are required to report to another reporting agency, the CTA will not require you to re-report to FinCEN.
These types of entities include SEC reporting issuers, governmental authorities, banks, credit unions, money services businesses, registered brokers or dealers in securities, exchange and clearing agencies, insurance companies, accounting firms, public entities, certain tax-exempt entities, and large operating companies, among others.
Fund-related exemptions include:
- SEC registered investment advisors
- SEC registered investment companies
- Venture capital fund advisors that make certain filings with the SEC
- Commodity pool operators/commodity trading advisors registered with the Commodity Futures Trading Commission (CFTC)
There is also an exemption for entities that employ more than 20 full-time employees in the U.S., have an operating presence at a physical office in the U.S., and demonstrate more than $5 million in gross receipts or sales on their federal income tax return (excluding receipt/sales from sources outside the U.S.). If a company falls below these thresholds in the future, a report must be filed within 30 days. An updated report is required if a reporting company later becomes eligible for the exemption.
Are Subsidiaries Exempt?
Sometimes.
Subsidiaries that are controlled or wholly owned, directly or indirectly, by certain exempt entities are also exempt. However, confirmation of this exemption should not be assumed to be automatic.
The subsidiary exemption does not extend to subsidiaries of money services businesses, pooled investment vehicles, subsidiaries of private client funds, or organizations assisting tax-exempt entities.
Subsidiaries or large foreign companies that do not qualify for the large operating company exemption due to lack of U.S. presence or gross receipts will not be exempt and will be required to file.
Is This a Tax Filing?
No, this is NOT a federal or state income tax, sales/use, or states gross receipts filing. Compliance with the obligations detailed in this release are in addition to your annual federal and state tax filing obligations. Reporting companies should consider reaching out to their corporate counsel relative to these filing obligations.
What Information Must Be Reported?
While no official filing form has yet to be released, FinCEN has provided general instructions as to what information is reportable.
For a reporting company, the CTA requires the following information to be reported:
- its full legal name,
- any trade name,
- its current street address,
- its jurisdiction, and
- its IRS taxpayer identification number
For beneficial owners and company applicants, the CTA requires the following information to be reported:
- their full legal name,
- date of birth,
- current residential address,
- a non-expired US identification document or, if not available, a foreign passport, and
- an image of the document used in (4)
The CTA defines, “Beneficial Owners” to include:
- Any individual who, directly or indirectly, either:
- exercises substantial control over a reporting company, or
- owns or controls at least 25 percent of the ownership interests of a reporting company.
- Substantial control is defined to cover a range of activities that could constitute substantial control of a reporting company, including: serving as a senior officer of the company, having substantial authority over the senior officers, and having influence over or any other substantial control over the company or the company’s important decisions. This list captures anyone who is able to make important decisions on behalf of the entity, but does not include mere employees acting solely as an employee.
What Are the Filing Deadlines?
Reporting companies will be able to file reports beginning January 1, 2024.
Reporting Companies formed or registered before January 1, 2024 will have until January 1, 2025 to file the required information. The CTA requires these entities to submit information about their Beneficial Owners but are not required to report information about their Company Applicants.
Reporting Companies formed or registered after January 1, 2024 will have 90 days to report Beneficial Owner and Company Applicant information. This was updated per the final regulations released on November 29, 2023.
Changes to information previously reported concerning either a reporting company or its beneficial owners must be reported to FinCEN within 30 days of the date of the change.
Are There Penalties for Non-Filing?
Yes, the CTA calls for both civil and criminal penalties for non-filing.
The CTA calls for civil penalties of $500 per day up to $10,000 and from a criminal perspective, imprisonment for up to 2 years.
If a report is filed that contains inaccurate information and the reporting company did not have actual knowledge the information was incorrect, it will be given a 90-day safe harbor to submit an accurate report.
Helpful Links and Additional Information
FinCEN Corporate Transparency Act Reference Materials
Beneficial Ownership Information and Reporting FAQs
DISCLAIMER: While Wolf & Company, P.C. is pleased to inform you of this new reporting requirement and though we may be able to provide some of the information necessary to complete this filing, assisting with the completion of required reports and determining compliance with the rule is outside the scope of the work our firm can undertake. Wolf & Company, P.C. encourages you to connect and consult with legal counsel regarding the CTA’s reporting requirements and filings. Wolf & Company, P.C. assumes no responsibility for preparation of the filing and meeting the filing deadlines noted above.
