Quarter 2, 2023: Corporate Transparency Act – Is Your Business Compliant?

Congress expressed a growing concern that bad actors are using shell or front companies to hide their identities to illicitly move money within our financial system. To combat this concern, Congress enacted the Corporate Transparency Act (CTA), which authorized the Financial Crimes Enforcement Network (FinCEN) to implement rules mandating certain reporting requirements for businesses. Starting on Jan. 1, 2024, existing companies will have 1 year to report certain information, such as its beneficial owners and its applicants, to FinCEN.

Who is required to report to FinCEN? Companies required to report include any corporation, limited liability company, or similar entity created by filing a document with a state’s secretary of state. The regulation applies to pre-existing companies and companies created after the effective date.

What information must be reported to FinCEN? The company’s report must contain the company’s name, current address, jurisdiction it was created, and Employment ID Number (EIN). The regulation also requires the reporting of beneficial owners of the company, which includes any individual who either exercises substantial control or owns or controls at least 25% of the company. The company must also report its applicants (the individuals that file or prepare the document creating the company). Reporting of the beneficial owners and applicants requires disclosure of the individual’s name, date of birth, address, a unique ID number and issuing jurisdiction (i.e. driver’s license or passport), and an image of the document containing the ID number.

Are non-profits exempted? There are limited exemptions carved out for the reporting requirements. Nonprofit organizations that are tax-exempt under IRS Code § 501(c) are exempt from the CTA.

Are there penalties associated with noncompliance? Failing to comply with the CTA’s reporting requirements can lead to serious ramifications, including a civil penalty of $500 per day (up to $10,000) and a criminal penalty of imprisonment for up to two years.

Do I report once or on a periodic basis? Reports must be updated if there is a change to the company or its beneficial owners. If previously reported information changes (e.g., by sale, transfer via an owner’s death, or new address), the new information would need to be timely reported to FinCEN.

Again, the civil and criminal penalties for failing to report are serious, and all companies should ensure the reports to FinCEN are both timely and accurate. If you own or operate a business, it is advisable to consult with a licensed attorney to ensure compliance with the reporting requirements or determine if you qualify for one of the few narrow exemptions not discussed in this article. The corporate transaction attorneys at Winters & King can help you and your business meet the CTA compliance standards by the effective date and are prepared to assist you in navigating this new complex regulatory scheme and help keep you and your business compliant. If you want assistance with your business’s CTA reporting requirements or have other questions about this new regulation, contact Attorney James Rayment at [email protected].