All Clients with Limited Liability Companies, Corporations, or Limited Partnerships Are Likely Impacted

Reporting requirements under the Corporate Transparency Act (CTA) will go into effect beginning January 1, 2024. Under the CTA, many business entities formed or registered in the US will be required to provide the personal information of its beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a division of the US Treasury Department. The purpose of the CTA is to combat money laundering, terrorist financing, and other financial crimes by creating and maintaining a central database of the beneficial owners of legal entities. The general public will not have access to the database.

“Reporting Entities” Subject to the CTA

The CTA will apply to entities, including corporations, limited liability companies and limited partnerships, that are formed or registered to do business in the United States by filing with a state-level office (“Reporting Entities”). Estate planning trusts are not Reporting Entities.

The CTA contains 23 exemptions, including an important exemption for “large operating companies” having (i) more than 20 full-time U.S.-based employees, (ii) a physical presence in the US, and (iii) more than $5 million in US-sourced receipts or sales. Other exemptions are included for certain subsidiaries, charitable organizations, and companies such as banks and insurance companies that are regulated by other federal agencies.

Other than trusts, most entities created for estate planning purposes will not be exempt from reporting, even if an entity is not engaged in a trade or business. For example, an individually or trust-owned LLC that owns as its sole asset, a personal residence or an investment portfolio, will be a Reporting Entity required to file.

Effective Date

The CTA currently has three key effective dates relating to initial reporting:

• New Reporting Entities formed or registered to do business in 2024 must report company, company applicant, and beneficial ownership information to FinCEN within 90 days of formation or registration.

• New Reporting Entities formed or registered beginning in 2025 must report within 30 days of formation or registration.

• Existing Reporting Entities that were formed or registered before January 1, 2024 have until January 1, 2025 to report.

Information to be Reported – Initial Reports

For Reporting Entities subject to CTA reporting, initial reports will include:

• Information relating to the Reporting Entity, such as its name, address, and EIN.

• Information relating to the Reporting Entity’s beneficial owners who are individuals and who directly or indirectly own or control 25% or more of a Reporting Entity.

• Information relating to individuals who exercise substantial control over the Reporting Entity (even if such individuals do not meet the beneficial ownership definition above).

• Information relating to individuals who assist in the formation of the Reporting Entity (but only for Reporting Entities formed or registered on or after January 1, 2024).

Information to be reported for each beneficial owner or individual who exercises substantial control includes the name, date of birth, residential address, and a copy of an identification document (such as a passport or driver’s license) for each such individual.

Ongoing Reporting Requirements

In addition to the initial reporting requirements, Reporting Entities must also report changes to beneficial ownership information and changes to information on individuals who exercise substantial control within 30 days of any change.

How to File Reports

Reporting Entities must report to FinCEN electronically through FinCEN's secure online portal, which has not been launched at the time of this writing.

Additional Considerations Applicable to Estate Planning Clients  

• The CTA's reporting requirements apply to both active and inactive businesses (including holding entities that merely hold title to real estate or an investment in another entity).

• While trusts are not Reporting Entities, the trustees, grantors, and beneficiaries of trusts owning an interest in a Reporting Entity may be required to provide their beneficial ownership information.

• Individuals making private investments should expect to be asked by the companies they are investing in to provide, and update as necessary, personal information needed for the company to report.

• For privacy, individuals can request a “FinCEN Identifier” – a unique identification number issued by FinCEN upon submission of the individual’s personal information, and which may be provided in lieu of an individual’s personal information on any Reporting Entity’s reports.

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