NOTE: This alert was updated on December 13, 2023
The Corporate Transparency Act (CTA) goes into effect January 1, 2024, and requires certain entities to submit organizational and ownership information to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).
Who Is Subject to CTA Reporting?
Any business entity formed in or registered with any state or Indian tribe to do business in the United States is subject to the CTA reporting requirements. This includes corporations, limited liability companies, and entities registered with a secretary of state’s office, unless an exemption applies.
Exemptions from Reporting
There are 23 exemptions to the company reporting obligations. Most significantly, entities exempt from reporting include:
- Large operating companies with:
- More than 20 full-time employees,
- An operating presence in the United States, and
- More than $5 million in gross receipts as reported on their previous year’s tax return;
- Tax-exempt entities;
- Government regulated entities;
- Inactive entities; and
- Subsidiaries of certain CTA exempt entities.
Exemptions are available on an entity-by-entity basis; there is no blanket exemption for all entities within a large organizational structure. As such, each entity within those larger structures must be analyzed to determine whether an exemption from reporting is available.
What Information Is Reported?
A reporting company will report general information about itself and of its beneficial owners. A “beneficial owner” is any individual who directly or indirectly: (i) owns or controls 25 percent or more of the reporting company, or (ii) exercises substantial control over the entity. A person with “substantial control” includes senior officers (President, CEO, COO, CFO, GC) and certain trust arrangements with intermediaries, custodians, and agents.
Dates and Consequences
New companies created during 2024 must file an initial report within 90 days of creation or registration. Those created after 2024 will have 30 days to file an initial report. Existing companies (those created before 2024) must file an initial report before January 1, 2025. Updates and corrections to any report filed with FinCEN are due within 30 days of the effective date of the change to the report.
Failure to report or misuse of information can result in either civil or criminal penalties, including fines up to $10,000 and imprisonment for not more than two years.
Helpful Resources
The reporting rules contain many nuances for determining whether a company is a reporting company under the CTA. We recommend that you communicate with counsel well in advance of reporting deadlines to ensure that all relevant filings are done in a timely manner. We want to make this process as seamless as possible for you and your business.
FinCEN has published and continues to update the information available for CTA reporting obligations. Visit the FinCEN website for their Small Entity Compliance Guide and FAQs.
