PLEASE READ THIS NEWSLETTER IN ITS ENTIRETY.  THERE IS A STRONG LIKELIHOOD IT WILL APPLY TO YOUR SITUATION.

December, 2023

THE CORPORATE TRANSPARENCY ACT

On January 15, 2021, a new law was passed by Congress, the “Corporate Transparency Act”  (hereafter referred to as CTA).  It is intended to be a tool against money laundering, illicit activities, corrupt acts, etc.  This act requires corporations, LLCs, and other entities to report beneficial owner information to the Financial Crimes Enforcement Network (FinCEN).  Reporting will officially begin on January 1, 2024.  Note that there will be different rules for entities formed before 2024 and those formed in 2024 or after year.

Although there are some exceptions to the requirements, most small, closely held corporations and LLCs will need to file these reports.  It will impact many entities across the United States.

REPORTING COMPANY

The law requires certain entities to file reports.  (This newsletter will not address any foreign reporting requirements.)

A reporting company is a corporation, limited liability company, or any other entity created by the filing of a document with a secretary of state or any other similar office under the law.  There are certain narrow exemptions from the reporting requirement for certain entities.

A special category was created to grant exempt status to avoid long forgotten entities from running afoul of the rules.  To qualify for this inactive entity status the entity must meet all the following criteria:

1. Was in existence on or before January 1, 2020; (thus no more entities of this type can be created).
2. Is not engaged in active business.
3. Is not owned by a foreign person, whether directly or indirectly, wholly or partially.
4. Has not experienced any change in ownership in the preceding twelve-month period.
5. Has not sent or received any funds in an amount greater than $1,000, either directly or through any account in which that entity or an affiliate of the entity had an interest, in the preceding twelve-month period; and
6. Does not otherwise hold any kind or type of assets, whether in the Unites States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.

If you have an entity that is no longer active but does not meet all the above requirements to be “grandfathered” as inactive you must either submit a report or formally dissolve the entity.  Corporations that have been administratively dissolved must file if the administrative dissolution is not at least 3 years old.  

BENEFICIAL OWNER

Under the law, information about each “beneficial owner” of a non-exempt entity must be reported to FinCEN, with any changes to that information timely reported as well.  Understanding who a beneficial owner is key. It means with respect to an entity, an individual who directly or indirectly:

1. Exercises substantial control over the entity.  This includes
   1. Senior officer or board representation, including president, CEO, CFO, COO, general counsel
   2. Individual who has authority over appointment or removal of senior officer or a majority of the board of directors
   3. Directs, determines, or has substantial influence over important decisions of the company.
   4. Rights associated with financing arrangements.
   5. Any other form of substantial control over the company.
2. Owns or controls not less than 25% of the ownership interest of the entity.  This includes equity, stock, capital or profits interest.

INFORMATION TO BE REPORTED ABOUT THE ENTITY

Full legal name, current address, state, Taxpayer Identification Number (EIN), and type of report – initial report, updating report, or correcting report.

INFORMATION TO BE PROVIDED ABOUT THE BENEFICIAL OWNER

Full legal name, date of birth, current residential address (must be street address, not PO), unique identifying number and document from an issuing jurisdiction from one of the following:

1. Non-expired passport issued by US government
2. Non-expired identification document issued by State, local government, or tribe
3. Non-expired driver’s license issued by the State

An image of the document from which the identifying number was obtained and an image of the person’s photograph on the document must be included.

UPDATED OR CORRECTED REPORT

An updated or corrected report must be filed within 30 calendar days after ANY of the information reported changes or is found to be incorrect.  For example, if the address of a beneficial owner changes, the report must be updated; if you renew a document used to report (i.e. driver’s license or passport) the report must be updated.  If an entity now meets the requirements to be exempt from reporting, FinCEN must be notified; if an entity no longer meets the exempt requirements a report must be filed.

PENALTIES FOR REPORTING VIOLATIONS

Penalties for willfully failing to report or reporting inaccurate or fraudulent reports subject to civil penalty of not more than $500 PER DAY.  Late reports are also subject to this penalty of $500 PER DAY.

WHEN REPORTS ARE DUE

There are two different due dates for reports depending upon date the entity was formed:

1. For entities formed after January 1, 2024, report must be filed with FinCEN within 30 calendar days after formation.
2. For entities formed prior to January 1, 2024, report must be filed by January 1, 2025.

HOW TO FILE REPORTS

Reports must be filed through a secure filing system available via FinCEN’s website.  FinCEN is currently building out a Beneficial Ownership Secure System (BOSS) to receive and store this information, expected to be live 1/1/24.  Information in BOSS is not available to the general public and is not accessible through Freedom of Information Act requests.

WHAT TO DO NOW

You should begin collecting all the pertinent information for your entities, especially the addresses, taxpayer identification numbers, and copies of official documents that must be uploaded to the FinCEN website.  If you own a business you will probably be required to report.  If you own an LLC, this includes an LLC formed just to hold property, you must report.  Our office will be able to assist you in identifying what entities are required to report and who the beneficial owners are.  Normal hourly rates apply.  More information is available on FinCEN’s website.