US Corporate Transparency Act – Filing Deadline Approaches | Best Best & Krieger LLP

BBK recently published a two-part series on 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 U.S. corporate transparency law, and the second part of this series, America’s corporate transparency law is almost here.

In short, the aim of the CTA is to help improve the transparency of beneficial ownership information for certain types of business entities and to combat illicit financial activities that use business formations to hide fraudulent identities.

The CTA came into force on January 1, 2024 and currently applies to reporting companies created on or after January 1, 2024 (“new companies”). As such, these new companies must file initial information reports within 90 days of receiving notice of their creation or registration. Reporting companies established or registered before January 1, 2024 (“existing companies”) must file their information return by January 1, 2025.

A reporting company is any domestic or foreign corporation, limited liability company or other entity created or registered to do business with a secretary of state or similar office under the laws of any state that is not one of the exemptions.

Filing Requirements

Reporting companies must submit a disclosure report to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) through its computer system called the Beneficial Ownership Secure System, which can be accessed here. FinCEN will now be able to track the beneficial owners of business entities through its monitoring systems.

Disclosure reports must include the full legal name of the reporting company, its business name if applicable, its current address, state, tribal or foreign jurisdiction of formation or registration, and its tax identification number IRS (TIN) and its Employer Identification Number (EIN). ).

Each beneficial owner must also disclose their 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 a image of the corresponding identification document.

If there is a correction or change from the initial information report filed, a new report must be filed within 30 days of the correction or change. Otherwise, there is no continued filing requirement.

Exemptions

There are 23 types of entities that may be exempt from complying with the CTA. These include, but are not limited to, government agencies, utilities, banks and credit unions, tax-exempt entities, subsidiaries of exempt entities, and large 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 uses the IRS definition of “full-time employee,” which includes anyone working at least 30 hours per week or 130 hours per month.
2. They filed a U.S. federal income tax return for the previous year that showed more than $5,000,000 in gross receipts or sales.
3. Operates from physical premises in the United States.

Failure to declare

Sanctions for non-compliance with the CTA may result in civil and criminal penalties. Any person or entity will be assessed a penalty of up to $500 for each day the violation continues. Criminal violations can also result in a harsher penalty of up to $10,000 as well as imprisonment of up to two years. Individuals could be charged and charged under the federal Criminal Code for providing false information or concealing a material fact from the federal government.

Backups

Reports filed with FinCEN will not be available to the general public. Persons authorized to access and review disclosure reports include federal agencies engaged in national security, intelligence, and civil and criminal law enforcement, the Department of the Treasury, and state law enforcement agencies and local authorities involved in civil or criminal investigations.

Steps to take now

When considering compliance with the CTA, reporting companies should conduct a thorough review of their corporate structures to identify beneficial owners and persons who can exercise substantial control over the entity (this is i.e. directors, members or officers, managers 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 Secure Beneficial Ownership System by the relevant deadline.

(See source.)