Congress passed The Corporate Transparency Act, which requires most small businesses to report information about its beneficial owner to the Financial Crimes Enforcement Network (“FinCEN).  The law applies to any domestic business entity that must register with a governmental entity, such as corporations and limited liability companies, as well as foreign entities that have registered to do business with a state of the United States.  The following entities are exempt: banks, credit unions, depository institutions holding companies, money services businesses, broker dealers in securities, security exchanges and clearing agencies, other exchange act registered entities, investment companies and investment advisers, venture capital fund advisers, insurance companies, state licensed insurance producers, commodity exchange act registered entities, accounting firms, public utilities, financial market utilities, pooled investment vehicles, tax exempt entities, entities assisting tax exempt entities, certain subsidiaries of exempt entities, and inactive entities.  Also exempt are large operating companies with at least 20 full-time employees, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the United States. According to Wolters Kluwer, “For an entity that is part of an affiliated group of corporations within the meaning of 26 USC 1504 that filed a consolidated return, the applicable amount shall be the amount reported on the consolidated return for such group.”

Reporting

Reporting will be done electronically, through a website created by FinCen.  It will begin on January 1, 2024.  Companies that are in existence prior to that date will have until January 1, 2025 to file a report. A company created after January 1, 2024 will have thirty days from the date actual notice of registration is received from the governmental agency or office in which the company is registered, usually the secretary of state to file its report.  Whenever there is a change in the reported information, the reporting company will have 30 days to file a report to update the information previously reported. 

The reporting company is required to report its legal name, any assumed named, the address of its principal place of business, the jurisdiction where it was formed and its taxpayer identification number.  In addition, it will have to note the type of report in its filing, i.e., initial report, correction report or up- date to prior report. If the company is formed after January 1, 2024, it will also have to report the company’s applicants. That is the individual who files the document that creates the company and the individual that is primarily responsible for directing the filing of the formation documents.

In addition, the company will have to report information about its beneficial owners. That includes those individuals who exercise substantial control over the reporting company and those individuals who either directly or indirectly hold a 25% ownership interest in the company. The definition of “substantial control” is fluid. In general, FinCEN is seeking the name of each individual who directs or exercises substantial influence over important decision making, as well as all of its senior officers.

As to each person deemed a beneficial owner, the reporting company must provide FinCEN with the individuals name, date of birth, address, as well as a unique identifying number such as a non-expired driver’s license number or a passport number and the state or jurisdictions that issued the document containing that number. 

Companies that do not file the required reports (including the amendments) by the filing deadlines are subject to a fine of $500 per day, up to a maximum fine of $10,000.00.  Willful or intentional filing of an inaccurate report is a felony, subject to two years in prison. Intentionally reporting misinformation concerning the beneficial owners is also a crime which can result in a civil penalty of $500 per day up to $10,000.00 or a criminal penalty of up to two years in prison. 

FinCEN says, “The CTA and its implementing regulations will provide essential information to law enforcement, national security agencies, and others to help prevent criminals, terrorists, proliferators, and corrupt oligarchs from hiding illicit money or other property in the United States. The CTA is part of the Anti-Money Laundering Act of 2020 (AML Act).” Maybe. Or Maybe it is just another way for the government to collect information and tax us.