Bulletin - Corporate Transparency Act

Bulletin - Corporate Transparency Act

February 20, 2024

For business owners, there is a new regulatory requirement for 2024 that we wanted to make sure you are aware of.

According to a recent Wall Street Journal article, “In a NSBA (National Small Business Association) survey of its membership published in November, about 47% of respondents said they had no idea what the Corporate Transparency Act was, while another 25% said they had heard of the law but didn’t know whether they needed to report.”

Our friend Jeffrey Stephens at GVM Law, LLP put together the following explainer which I’m sure you’ll find useful.

You can fulfil this filing requirement at the Financial Crimes Enforcement Network (FinCEN) website here: https://www.fincen.gov/boi

Please reach out with any questions.

From Jeff:

Beginning on January 1, 2024, “reporting companies” (with limited exception) are required to file a beneficial ownership report online through the Financial Crimes Enforcement Network (“FinCEN,” which is a part of the U.S. Department of the Treasury).

Use of Information. The information reported to FinCEN by reporting companies will not be publicly available but will be accessible by certain law enforcement agencies, regulatory agencies, financial institutions (only with the consent of the reporting company) and Department of the Treasury personnel.

Timing. Domestic reporting companies formed in 2024 have 90 days to file their initial report. Companies already existing prior to January 1, 2024 are required to file their initial report by January 1, 2025. The same timelines apply for foreign reporting companies registered to do business in the United States. Entities are required to keep this disclosed information updated and must file updated reports within thirty (30) days of certain changes.

Reporting Requirements and Exceptions. A “reporting company” includes corporations, LLCs, limited partnership and other entities created by the filing of a document with a Secretary of State or any similar office. General partnerships, sole proprietorships and donative trusts generally do not constitute reporting companies.

Many reporting companies are not required to file the beneficial ownership report. The final rules include 23 separate exemptions, the most notable of which include:

1. Regulated industries (banks, insurance companies, utilities, public accounting firm, etc.) are not subject to the reporting requirements.

2. Large companies with: (a) an operating presence at physical U.S. location, (b) 20+ full time employees in U.S., and (c) a filed federal income tax return in prior year showing more than $5 million in gross receipts and sales. All three requirements must be met to be excluded from reporting requirements as a large company.

Penalties. Compliance with the CTA is mandatory. Penalties may include fines and/or imprisonment.


Reporting Process and Required Information. Reporting under the CTA is done through an online portal on the FinCEN website. Information that must be disclosed includes: (1) background information about the entity, (2) information about the beneficial owners (individuals with either substantial control or an ownership interest), and (3) the company applicants.

The required information for a reporting company includes: (1) legal name; (2) trade names or “dba” / “doing business as” names; (3) address of its principal place of business; (4) jurisdiction of formation; (5) for a foreign reporting company, the United States jurisdiction where it first registered; and (6) its IRS-issued taxpayer identification number (“TIN”).

The required information for individuals (including beneficial owners and company applicant) includes: (1) legal name; (2) date of birth; (3) residential address (not PO Box) or, for a company applicant who formed or registered a reporting company in the course of his or her business, the individual’s business address; (4) an identifying number from the individual’s driver’s license, passport, or other approved identification document; (5) the issuing jurisdiction of the identification document from which the identifying number was obtained (the “identification document”); and (6) an image of the identification document.

Difficulties in Reporting. Under the CTA, “ownership interest,” “substantial control,” “beneficial owner,” and “company applicant” are all defined terms with specific rules, requirements, and guidance. The applicability of these definitions to real-world situations are not necessarily intuitive and the rules around these defined terms can complicate the reporting for many entities.

Although no annual report is required, a reporting company must file updated reports when there is a change to the reportable information of the entity (e.g. a new address of a beneficial owner, a new manager appointed, etc.). Updated reports must be submitted within thirty (30) days of such a change.

Many common business circumstances could increase the difficulty in complying with the CTA reporting requirements, including: (1) existence of options, restricted stock, and other privileges to buy or sell interests, (2) ownership by other entities, estates, or trusts, (3) entities based outside the U.S., (4) individuals with ability to direct or replace a manager or officer or otherwise exercise “substantial influence” on the business, and (5) for trusts owning portions of the entity, the powers of settlors and beneficiaries in the trust to request or direct distributions.


Conclusion

The Corporate Transparency Act is the latest addition to the long list of compliance requirements business owners must navigate. As with all new legislation, we expect additional rules and clarifications to be enacted and published in 2024 and beyond as lawmakers receive feedback from business owners and the professional community.

GVM Law has represented business owners and high net worth families in business, tax, and trust and estate matters for over 50 years. We hope this information is helpful as you plan for your business. Please contact one of the attorneys at GVM Law for more information about the Corporate Transparency Act and how the firm might assist with your business needs.

Jeffrey Stephens

jstephens@gvmlaw.com

GVM LAW LLP

2540 Douglas Blvd., Ste. 100

Roseville CA, 95765

916-789-3900

www.gvmlaw.com


Disclaimer: This material is for informational purposes only and does not constitute tax or legal advice