The Corporate Transparency Act

REVISED NOVEMBER 6, 2023
AUTHOR: GRANT ISON & DAVE ISON
The original form of this article, written by Grant Ison, first appeared on the Blog at https://ison.law/corporate-transparency-act/

EFFECTIVE DATE:

The rule goes into effect January 1, 2024. For entities that already exist by that date, their initial reports are due by January 1, 2025. For entities created on or after that date, their initial reports are due within 30 days from the creation of the entity. As of now, there are no extensions available. There are stiff civil and criminal penalties for failing to file – this is not something that can be dismissed.

WHAT IS IT?

The Corporate Transparency Act is a new federal law. The Act will impact almost all LLCs, corporations, limited partnerships, and other closely held entities.

There are a few exceptions to the reporting requirements under the Act. Those exceptions are listed at the end of this newsletter.

PURPOSE

The purpose of the CTA is to create a national database of companies in the U.S. that identifies the human beings behind the companies as owners or control persons. The law is part of an increasing effort to combat money-laundering, terrorism, tax evasion, and other financial crimes. Congress intended to try to help law enforcement by creating this national database of organizations that might be involved in such activities but it will apply even if the entity is not so involved.

The Financial Crimes Enforcement Network (“FinCEN”), which is a bureau of the United Stated Treasury Department, is not part of the IRS, will be in charge of creating and maintaining the database, which as of now will not be of public record but available to a variety of agencies and possibly others in the future. All “reporting companies” will be required to file reports with FinCEN that provide certain information regarding the companies and “beneficial owners” of the companies – the humans behind the companies.

WHO IS IMPACTED?

This new law will affect virtually all small family businesses, including corporations, LLCs, limited partnerships, and even other entities designed only to hold real estate. Even if an entity has only one owner and that entity is ignored for federal income tax purposes (such as a single-member LLC), that entity still will have to file reports with FinCEN.

If you have any interest in a closely held entity, such as an LLC, corporation, or limited partnership, or if you exert significant control over any such entity (which might include any officer, director, manager, chief financial officer or investment trustee) then you may be subject to these requirements. If so then you may be responsible for filing reports with FinCEN.

WHAT IS REPORTING?

A reporting company must file a report with the full legal name, DBAs, Trade Names, Address, and Taxpayer ID #. The reporting company is responsible for reporting all required data to FinCen, including the beneficial owner data. The reporting company must include data about beneficial owners and individuals who control the company.

A report about a beneficial owner or controlling individual must include the individuals name, date of birth, address, Social Security Number, Unique Identifying number and issuing jurisdiction of valid driver’s license, passport, and an image of the driver’s license or passport.

An applicant who forms or registers the entity must also report the same data as the beneficial owner and controlling individual.

Certain other reporting is required for unique circumstances like a minor child.

NOTE: All reporting must be maintained current with FinCen. If the name, address or other reported data changes, the entity or individual must update the FinCen report.

WHAT IS A FINCEN IDENTIFIER?

An individual or reporting company, rather than complete all of the data under each category or for each entity, may submit a FinCen Application with all the required information and obtain from FinCen a unique FinCen Identifier. That FinCen Identifier can be used by the individual or reporting company rather than repeatedly entering the required data for each reporting entity or beneficial owner.

NEXT STEPS

Given the difficulties of identifying all the entities and persons that will have to report, we suggest that you begin now to assemble a list of every privately held entity that you own an interest in or exert control over.

• You should try to obtain a copy of the certificate that was filed with the state where the entity was formed as well.
• Because we may have formed entities years or decades ago, we may not have accessible records to identify all such entities.
• Also, you may have had other advisers form entities of which we are not aware.
• You may have even formed entities on your own.
• In any case, we will not undertake to find these entities for you or to prepare the forms required to report to FinCEN unless you separately engage us to do so.
• If you do wish to engage us to help with this new requirement, we will then begin the process of determining if it is a reporting entity and whether you or someone else will assume responsibility for the reporting.
• We believe that assembling such a comprehensive list may be prudent to avoid missing any entities, particularly considering the penalties that may be imposed.

WHO IS NOT IMPACTED?

Exempted from this requirement are entities such as the following. These are generally entities that are already subject to significant reporting requirements: :

• An issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934.
• Bank, credit union or depository institution.
• Money transmitting business registered with FinCEN.
• Broker or dealer in securities.
• Investment company or investment adviser.
• Insurance company.
• A futures commission merchant.
• Any public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act.
• Public utility.
• Pooled investment vehicle.
• Tax exempt entity that is described in section 501(c) of the Internal Revenue Code (“Code”).
• A political organization as defined in section 527(e)(1) of the Code.
• A trust described in paragraph (1) or (2) of section 4947(a) of the Code.
• An Inactive Entity
• 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 and certain subsidiaries

Please call us to discuss the Corporate Transparency Act and what it means for your situation.

Ison Law
10348 Sawmill Road, PO Box 1108
Powell, OH 43065
614.336.3083
dave@ison.law
grant@ison.law
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