The CTA was enacted to help the U.S. Government combat money laundering, terrorism, tax evasion, and other financial crimes by creating a national database of organizations in the U.S. that identifies the human beings behind the companies as owners or controlling persons. Unfortunately, the broad reach of the CTA is likely to impact you if you own or have an ownership interest in a limited liability company, corporation, limited partnership, or any other entity that is formed by filing documentation with a state or locality in the U.S. The CTA requires “reporting companies” to report additional information regarding the beneficial owners and others who have control over the reporting companies to the U.S Treasury Financial Crimes Enforcement Network (“FinCEN”) and updated annually.
This Alert provides a simple Q&A to help you determine whether you are impacted by the CTA.
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When does the CTA apply?
The CTA was enacted in 2021 but does not become effective until January 1, 2024.
Who does it affect?
The CTA will affect “reporting companies,” which include virtually every small business, including LLCs, corporations, and other entities designed only to hold real estate or investment assets and conduct no active business activities. 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 is considered a reporting company and still will have to file with FinCEN (Financial Crimes Enforcement Network).
What are the deadlines?
The law is effective January 1, 2024:
- For existing entities created before January 1, 2024, their filings are due by January 1, 2025.
- For entities created on or after January 1, 2024, their filings are due within 90 days from the creation of the entity. (The original regulations stated that the filing deadline was 30 days after formation, but proposed regulations have extended the filing date to 90 days.)
As of October 31, 2023, no extensions are available.
What information needs to be filed?
The reporting company must file the following information online with FinCEN (Financial Crimes Enforcement Network):
- Reporting Company:
- Legal name and any d/b/a's
- Business address
- Jurisdiction of formation
- Unique identification number (e.g., taxpayer ID or EIN)
- Beneficial Owners and Applicants:
- Legal name
- Date of birth (or date of formation if an entity)
- Residential address for Beneficial Owners, Business address for professional Applicants, Residential address for other Applicants
- Unique identifying number from an acceptable identification document (e.g., unexpired passport number or valid state driver’s license) or FinCEN identifier
- Image of document with Beneficial Owner’s picture and ID number
Who is a “Beneficial Owner”?
A “Beneficial Owner” generally is anyone who has a 25% or greater interest in a closely held entity, such as an LLC, corporation, or limited partnership, who owns at least 25% of the voting interests, or who exerts significant control over any such entity (which might include any officer, director, manager, chief financial officer or investment trustee of the reporting company or any beneficial owner that owns or controls the entity).
Who is an “Applicant”?
An “Applicant” generally includes the individual that filed the formation documents with the state of formation and any person who supervised that individual.
Are there any penalties for failing to file on a timely basis?
The penalties for not filing by the deadlines are steep. $500 per day up to a maximum of $10,000, with possible criminal penalties of up to two years in prison.
Are there exceptions?
Generally, companies that have over $5 million in revenue and have more than 20 employees are exempt from filing. Other exceptions include insurance or investment companies, tax exempt entities, accounting firms, investment or pooled investment vehicles, are some of the main ones. Join us at the webinar for the full list.
After I file once, am I done?
Yes, IF there are no changes in the information, such as addresses. Otherwise, you will have to file any changes annually.
Who can help me with this required filing?
If you would like our firm to handle your filing, please contact our office at 571.203.9355 or clientservice@zelllaw.com and we will send you an engagement letter so we can get started as soon as possible.
How can I learn more?
We will be holding a webinar on the Corporate Transparency Act at noon on November 29th. Click HERE to register for the event.