The US Corporate Transparency Act – filing deadline approaching | Best Best & Krieger LLP

BBK recently released a two-part series discussing the Corporate Transparency Act (“CTA”) – new legislation passed by Congress in January 2021, as part of the Anti-Money Laundering Act of 2020. Read the first part of this series, What you need to know about the US Corporate Transparency Act, and the second part of this series, The US Corporate Transparency Act is almost here.

In short, the purpose of the CTA is to increase the transparency of beneficial ownership information for certain types of business entities and to combat illicit financial activities that use corporate creations to obscure fraudulent identities.

The CTA became effective on January 1, 2024 and currently applies to reporting companies incorporated on or after January 1, 2024 (“New Companies”). As such, these new companies must file an initial disclosure report within 90 days of receiving notice of their incorporation or registration. Reporting companies incorporated or registered before January 1, 2024 (“existing companies”) must submit their reporting report before January 1, 2025.

A reporting company is a domestic or foreign corporation, limited liability company, or other entity organized or registered to do business with a Secretary of State or similar office under the laws of a state not covered by any of the exemptions fall.

Submission Requirements

Reporting companies must file a disclosure report with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) through its IT system, the Beneficial Ownership Secure System, which can be found here. FinCEN will then be able to track the ultimate owners of business entities through its monitoring systems.

Disclosure reports must include the reporting company’s full legal name, trade name, if any, current address, state, tribal or foreign jurisdiction of incorporation or registration, and the IRS Taxpayer Identification Number (TIN) and Employer Identification Number (EIN ). ).

Each beneficial owner must also disclose his or her full legal name, date of birth and current residential address, an identification number (such as an unexpired ID, driver’s license or passport number), and an image of the associated identification document.

If there is a correction or amendment to the initial disclosure report filed, a new report must be submitted within 30 days of the correction or amendment. Otherwise there is no continuous filing obligation.

Exemptions

There are 23 types of entities that can be exempt from complying with the CTA. These include, but are not limited to, government agencies, public utilities, banks and credit unions, tax-exempt entities, subsidiaries of exempt entities, and major operating companies*.

*Large operating companies must meet the following criteria:

1. They employ more than 20 full-time employees in the United States. In this case, FinCEN is using the IRS definition of “full-time employee,” which includes anyone who works at least 30 hours per week or 130 hours per month.
2. They filed a federal U.S. income tax return for the previous year showing more than $5,000,000 in gross receipts or sales.
3. Operates from a physical building in the United States.

Not reporting it

The penalties for failure to comply with the CTA may result in both civil and criminal penalties. Each person or entity will be assessed a fine of up to $500 for each day the violation continues. Criminal violations can also result in a more severe penalty of up to $10,000, along with a prison sentence of up to two years. Individuals could potentially be charged and charged under the federal criminal code for providing false information or concealing a material fact from the federal government.

Guarantees

Reports filed with FinCEN are not accessible to the general public. Those who may access and review the disclosure reports include federal agencies involved in national security, intelligence, and civil and criminal enforcement, the Treasury Department, and state and local law enforcement agencies involved in civil or criminal investigations.

Steps to take now

When beginning to consider compliance with the CTA, reporting companies should conduct a comprehensive assessment of their corporate structures to identify beneficial owners and individuals who can exercise substantial control over the entity (i.e., directors, members or managers, officers and shareholders).

Takeaways

Companies that qualify as reporting companies and do not meet one of the 23 exceptions are encouraged to comply with the CTA by submitting a disclosure report to the Beneficial Ownership Secure System by the relevant deadline.

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