Corporate Transparency Act Reporting Obligations Continue
In an effort to combat crime, Congress passed into law the Corporate Transparency Act (CTA) as part of the Anti-Money Laundering Act of 2020 in the National Defense Authorization Act for Fiscal Year 2021.1 The CTA (31 U.S.C. § 5336) requires certain businesses to report beneficial ownership information (BOI) to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This article will attempt to summarize these new obligations. Existing entities must report by January 1, 2025; new entities must report 30 days after their creation effective January 1, 2024. The final regulations were published in the Federal Register on September 30, 2022.2 The issue is an important one as there are civil and criminal penalties for the failure to report. So what is it and what am I supposed to be doing?
Businesses Which Must Report
Under the CTA, those entities which qualify as a “reporting company” and for which an exemption does not apply must report BOI. Basically, any entity that was created by filing with a Secretary of State (or the like) must report unless excepted. The obligation extends to foreign companies too (i.e., those from overseas).
Exempt Businesses
The CTA exempts from the reporting requirement several categories of larger, more highly regulated entities (and which are presumably already paying taxes). There are at least three exemptions of note: large operating businesses; inactivate entities; and subsidiaries of certain exempt entities.
Who Must be Identified in the Report
Beneficial Owners
The reporting company’s BOI report must include the company’s beneficial owners. Beneficial owners are people who either exercise substantial control over the reporting company or who own or control at least 25% of the ownership interests. Ownership interests are defined broadly. The regulations also define individuals who are exempt from reporting.
Company Applicant
Company applicants are individuals who directly file for the creation of a domestic company or a foreign company.
Timing of the Report
Existing reporting companies do not need to report until January 1, 2025. A reporting company or foreign reporting company created on or after January 1, 2024 is required to report within 30 calendar days of creation. Current agency guidance is suggesting 90 days.
Information to be Reported
Beneficial Owners and Company Applicants
A reporting company’s report must include information about its beneficial owners which include their full legal names, birth dates, complete current addresses, a unique identifying number (i.e. passport, driver’s license, government document used for identification), and photo copy of the unique identifying number.
Reporting Company
A reporting company must disclose information about itself as well including: full legal name of company; trade names; complete street address, jurisdiction of formation, and tax payer ID.
Conclusion
For those entities which are not exempt from reporting, the deadline for the report of BOI is rapidly approaching. Existing entities will need to report by January 1, 2025; new entities need to report effective January 1, 2024. The preceding does not constitute legal advice. Parties interested in further CTA compliance should contact counsel, a certified public accountant, or enrolled agent of their choice.
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John F. Fatino is an attorney in the Des Moines office of Whitfield & Eddy, PLC. The author gratefully acknowledges the research and writing assistance of Nathan Brittan, J.D. For more information on CTA compliance, contact John F. Fatino at (515) 288-6041.
1 National Defense Authorization Act for Fiscal Year 2021.
2 87 Fed. Reg. 59498 (September 30, 2022) (to be codified at 31 C.F.R. 1010.380). References to the CFR provisions are to the version set forth in the final rule but which have net yet been set forth in the Code of Federal Regulations.
3 31 C.F.R. § 1010.380(b)(2)(iv).
4 31 C.F.R. § 1010.380(d)(2)(i).