The Corporate Transparency Act (CTA) is a federal law passed in 2021 intended to reduce money laundering and tax fraud – noble goals. In order to achieve these goals, the federal government is going to require all ‘entities’ (other than those that are exempt…a story for another day) to file an annual report with the Financial Crimes Enforcement Network (FinCEN) disclosing detailed information about the entity and the individuals associated with it. The government expects over 32 million initial reports to be filed at an estimated cost of about $22 billion, plus an additional $2 billion each year for updated reports.

Read on for 5 Things to Know about the CTA.

1. Who has to Report?

Business entities that are required to report are called reporting companies. These include corporations, limited liability companies (LLCs), and other entities created or registered by filing a document with a secretary of state or similar state office.

Keep in mind that ‘business entities’ such as LLCs are often used as part of an estate plan especially if rental or commercial real estate is owned. Those LLCs fall within the scope of the CTA and must comply with the reporting requirements.

2. What Information is Required?

Reporting companies created before January 1, 2024, must provide information about the company and its beneficial owners. Reporting companies created on or after January 1, 2024, must provide information about the company, its beneficial owners, and its company applicants.

A. Company Information

The reporting company must provide its name and any alternative names, the address of its principal place of business, the state of formation, and its taxpayer identification number.

B. The Identities of the “Beneficial Owners”

A beneficial owner is anyone who owns at least 25 percent of the reporting company or ‘exerts substantial control over it.’ Each beneficial owner of a reporting company must furnish their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification (ID), along with a copy of the ID document.

Note that while a trust is not a reporting company, it may be subject to reporting information as a beneficial owner if ownership interests in a reporting company are held in trust.

C. What is a “Company Applicant?”

A company applicant is the person who files the business entity’s creation documents, as well as the person who directs this action. This could include the business owner(s), a lawyer, a CPA, other advisors, and potentially their assistants and staff. A company applicant is required to submit the same information as a beneficial owner.

3. What are the Deadlines for Filing?

Entities created prior to January 1, 2024, have until January 1, 2025, to file an initial report; reporting companies created after January 1, 2024 and before January 1, 2025, will have 90 days after creation to file an initial report. Entities created on or after January 1, 2025 will have 30 days to submit an initial report to FinCEN.

This is not just a one-time reporting requirement. A company, beneficial owner or company applicant must report any changes to reported information to FinCEN. For updates, the 30 days start from when the relevant change occurs. For corrections, the 30 days start after becoming aware of, or having reason to know of, an inaccuracy in a prior report. There are no safe harbors for filing an incorrect report.

4. What Happens if a Report is not Timely Filed?

The penalty for failure to file is up to two years in prison and $10,000.

5. How do you file a report?

The reports must be filed electronically via the FinCEN website.

There is a possibility of at least temporary relief for small businesses in the form of a bill entitled ‘The Protect Small Business and Prevent Illicit Financial Activity Act (H.R.5119)’ which was passed by the House and is currently before the Senate. If passed, this bill would extend the deadline for existing companies to January 1, 2026. The deadline for companies formed on or after January 1, 2024 to file their initial report would be codified as 90 days; and the deadline for companies to report changes in their reports would be extended from 30 to 90 days.

If you have a small business that is an LLC, a corporation or other registered entity, you should consult with your business attorney about your filing duties. If you have an LLC or other entity for liability protection or as part of your estate plan, we recommend you consult with your CPA to discuss your reporting obligations and the steps needed to achieve compliance.

Attorney Suzanne R. Sayward is a partner with the Dedham law firm of Samuel, Sayward & Baler LLC which focuses on advising its clients in the areas of estate planning, estate settlement and elder law matters. She is certified as an Elder Law Attorney by the National Elder Law Foundation, a private organization whose standards for certification are not regulated by the Commonwealth of Massachusetts. This article is not intended to provide legal advice or create or imply an attorney-client relationship. No information contained herein is a substitute for a personal consultation with an attorney. For more information visit our website at www.ssbllc.com or call 781/461-1020.
January, 2024
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