Legal Alert: New Reporting Rule – Corporate Transparency Act
Legal Alert: New Reporting Rule
New year, new you? No! New year, new regulations!
Authored by Alyssa Johnson & Mark Smith
Beginning January 1, 2024, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) Corporate Transparency Act (CTA) requires that certain entities report their Beneficial Owners’ Information (“BOI”) to FinCEN. In addition, reporting entities must also disclose information about those persons that file or direct the filing for the formation of the entity. As a client, friend, or contact of Barron & Newburger, P.C., we feel it is important to make as many people as possible aware of the upcoming deadlines and reporting requirements because the CTA’s impact is wide-reaching and the consequences for non-compliance severe, including significant monetary penalties and imprisonment in willful cases. These reporting requirements also apply to law firms unless the law firm falls under one of the exceptions in the CTA.
The CTA is intended to prevent and address money laundering and requires many companies to report information about (1) the organization (“Reporting Companies”); (2) the beneficial owners (“Beneficial Owners”) and (2) individuals who directed the creation of the company (“Company Applicants”).
An overview of the requirements are as follows:
What is a Reporting Company?
A Reporting Company includes a corporation, a limited liability company (LLC), limited partnership (LP) limited liability partnership (LLP), or similar entity that was formed by the filing of a document with a secretary of state or similar office. A general partnership and sole proprietorships are not Reporting Companies. However, there are exceptions, including:
- “Large” companies that (1) Have over 20 full-time United States-based employees; (2) Have a physical operating presence in the United States; and (3) Can demonstrate in excess of $5 million in gross receipts on its annual federal tax return. (Once an entity no longer satisfies the above three criteria, it will be required to report information about the company to FinCEN under the CTA).
- SEC-reporting companies;
- Regulated financial service and insurance companies;
- Inactive entities formed before 2020 (being inactive includes having no bank accounts)
- Common law trusts (though a trust can be a Beneficial Owner of a Reporting Company); or
Who are Beneficial Owners?
If your entity qualifies as a Reporting Company, you are required to report certain information about the entity’s Beneficial Owners. Beneficial Owners include:
- Senior officers (examples include a president, CEO CFO, COO); or
- Individuals with the authority to appoint or remove officers or a majority of directors (or similar body) of the reporting company; or
- Individuals who are an important decision-maker for the reporting company (meaning one who makes decisions about business, finances, and structure); or
- The individual has any other form of substantial control over the Reporting Company; or
- An owner of the entity owning at a 25% or greater interest in the entity.
What Information Must be Reported?
Reporting Companies must report their (1) legal name and any tradename or DBA, (2) address, (3) state of formation, and (4) taxpayer ID (EIN).
Beneficial Owners and Company Applicants must provide their (1) legal name, (2) birthdate, (3) home address, and (4) an identifying number from a driver’s license or passport, accompanied by an image of the document.
What is the Deadline to File?
All existing Reporting Companies created before January 1, 2024 must file no later than January 1, 2025.
All new Reporting Companies created between January 1, 2024 and December 31, 2024 must file within 90 calendar days of notice of their creation or registration.
All Reporting companies created on or after January 1, 2025 must file within 30 calendar days of notice of their creation or registration.
All Reporting Companies, Beneficial Owners, and Company Applicants must report any changes to the Required Disclosures within 30 days of the change.
Reports must be filed electronically using FinCEN’s filing system and there is no fee to file.
What are the Penalties?
Penalties for willfully violating the CTA’s reporting requirements include civil penalties of $500 per day, a criminal fine of up to $10,000, and imprisonment for up to two years.
If you have questions about the CTA or how to comply with its requirements, we can help. Please contact Mark Smith ([email protected]) or Alyssa Johnson ([email protected]) for more information.
Disclaimer
This legal alert is for informational purposes only. It should not be regarded or relied upon as legal advice nor is it a substitute for consulting with a licensed attorney.
