CTA Reporting Obligations – Are You Prepared?

Trent Cotney, Partner, Adams and Reese LLP

As you are likely aware, the Corporate Transparency Act (CTA) was passed in 2021 and its requirements took effect on January 1, 2024. The goal of the CTA is to enforce transparency in business ownership and structures and its intent is to prevent money laundering, terrorism financing, tax fraud and other illicit activities.

What Companies Are Impacted?

Most entities that are incorporated or registered to do business in a state are required to disclose details about their owners, officers and other significant stakeholders. They must provide this information to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S. Department of the Treasury.

The mandates of the CTA will impact nearly every small business. Reporting companies are primarily limited liability partnerships (LLPs), limited liability limited partnerships (LLLPs), limited liability companies (LLCs) and business trusts. Even single-owner LLCs must report, but sole proprietors that are not LLCs are not.

Both domestic and foreign businesses must comply. This includes:

• Domestic reporting companies, such as LLPs, corporations or other entities formed after filing with a secretary of state or similar office under state or tribal law.
• Foreign reporting companies, such as LLCs, corporations or other entities created per the law of a foreign country and registered to do business in a U.S. state or tribal jurisdiction.

Are Some Companies Exempt?

Many larger companies in highly regulated industries are not required to submit the CTA reporting, as they follow other requirements. These fall into 23 categories: Bank Holding Companies and Savings and Loan Holding Companies; Banks; Broker-Dealers; Commodity Exchange Act Registered Entities; Other Exchange Act Registered Entities; Domestic Credit Unions; Domestic Governmental Authorities; Financial Market Utilities; Large Operating Companies; Pooled Investment Vehicles; Public Accounting Firms; Public Utilities; Registered Money Transmitting Businesses; Registered Investment Companies and Advisers; Securities Exchange or Clearing Agents; Securities Issuers; State-Licensed Insurance Producers; State-Regulated Insurance Companies; Tax Exempt Entities; Entities Assisting Tax Exempt Entities; Subsidiaries of Exempt Entities; Inactive Entities; and Venture Capital Fund Advisers.

Large operating companies meet these criteria if they:

• Employ more than 20 full-time workers in the United States.
• Operate physical offices in the United States.
• Report more than $5 million in gross sales or receipts, as evidenced by the previous year’s tax return.

What Are the Deadlines?

If an entity was created before January 1, 2024, it must file its initial report by January 1, 2025.

If it was formed between January 1, 2024 and January 1, 2025, it must file its initial report within 90 days of the company’s creation.

If an entity is formed after January 1, 2025, it must file within only 30 days of its creation. There are currently no extensions to these deadlines.

What Information Must Be Provided?

Non-exempt entities must submit information such as the following:

• The reporting company name, applicable trade names, physical address, registration jurisdiction and tax identification number.
• The reporting company’s beneficial owners, as well as their birthdates, addresses, government-
  issued identification numbers (passport or driver’s licenses) and copies of those ID documents.
• Names of the applicants who filed the documents to create the entity or directed someone else to do so.

A beneficial owner is defined as a person with substantial control over a given company or a person who owns (or controls) at least 25 percent interest in the company.

If submitted information changes or is found to be inaccurate, revised reports must be submitted within 30 days of the change or learning about the error. Some examples of events that require changes include, but are not limited to, an owner having a name change, moving or passing away; a form of identification expiring or a company changing an address.

Providing false information, failing to submit complete information or failing to amend information can lead to criminal and civil penalties – as much as $10,000 for each violation and two years in prison.

Next Steps

If your company is among the many small businesses required to comply with CTA reporting, begin organizing your information as soon as possible. If the company was created before 2024, you have until January 1, 2025 to file your initial report. However, it may take time for you to locate the company registration documents and gather the other required pieces of information.

To learn more, visit the FinCEN web page at www.fincen.gov/boi, which includes frequently asked questions and instructional videos.

FRM

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and FRSA General Counsel. You can contact him at 813-227-5501 or trent.cotney@arlaw.com.