Alert Regarding New Law Affecting All Closely-Held Entities

Corporate Transparency Act

This notice aims to provide you with an understanding of the recently enacted Corporate Transparency Act (CTA) and guide you through an overview of the steps necessary for compliance.

Who is Affected by the CTA?

The CTA will impact almost all LLCs, corporations, limited partnerships, and other closely held entities, including even LLCs and other entities designed only to hold real estate. 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 still will have to file reports with FinCEN.

The extensive scope of this new law cannot be understated.  The CTA will have a very wide application and will affect many people including a very large percentage of our firm’s clients, for that reason, we encourage you to read very closely. 

Compliance Timeline

The law becomes effective January 1, 2024. 

• New Entities: Entities formed on or after January 1, 2024, must comply by submitting the necessary information within 90 days of formation. However, entities formed on or after January 1, 2025 must submit the necessary information within 30 days of formation. 
• Existing Entities: Entities in existence prior to January 1, 2024, have until January 1, 2025, to comply.

It is important to note, as of today, there are no extensions available to file the required information. There are stiff civil and criminal penalties for failing to file – this is not something that can be ignored or missed, so we encourage you to read the following carefully.

Purpose of CTA

The purpose of the CTA is to create a national database of companies in the U.S. that identifies the human beings behind the companies as owners or control persons. The law is part of an increasing effort to combat money-laundering, terrorism, tax evasion, and other financial crimes. Congress intended to try to help law enforcement by creating this national database of organizations that might be involved in such activities, but it will apply even if the entity is not so involved. 

The Financial Crimes Enforcement Network (“FinCEN”), which is a bureau of the United Stated Treasury Department but is not part of the IRS, will be in charge of creating and maintaining the database, which as of now will not be of public record but will be available to a variety of agencies and possibly others in the future. All “reporting companies” will be required to file reports with FinCEN that provide certain information regarding the companies and “beneficial owners” of the companies – the humans behind the companies.

Reporting Requirements Detailed

If you have any interest in a closely held entity, such as an LLC, corporation, or limited partnership, or if you exert significant control over any such entity (which might include any officer, director, manager, chief financial officer or investment trustee) then you may be subject to these requirements. If so, then you may be responsible for filing reports with FinCEN. 

If it is determined that your entity must meet the requirements under the CTA, the following information regarding the entity must be reported:

• Entity’s legal name;
• Any trade names, “doing business as” (d/b/a), or “trading as” (t/a) names;
• The current street address of its principal place of business if that address is in the United States (for example, a U.S. reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the United States, the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters);
• Its jurisdiction of formation or registration; and
• Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).

The following information regarding the beneficial owners and entity applicants must be reported:

• The individual’s name;
• Date of birth;
• Residential address; and
• An identifying number from an acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of identification document.
• The reporting company will also have to report an image of the identification document used to obtain the identifying number.

One option available to reporting companies, beneficial owners, and entity applicants will be to obtain FinCen Identifier Numbers. To obtain a FinCen Identifier Number, a company or individual will be required to file an application with FinCen containing the required reporting information listed above. When an individual who is a beneficial owner or company applicant has obtained a FinCEN identifier, reporting companies may report the FinCEN identifier of that individual in the place of that individual’s otherwise required personal information on a beneficial ownership information report. Obtaining a FinCen Identifier Number will have two distinct advantages: (1) individuals will be able to report changes to information associated with their identifier number eliminating the need for entities to file updated reports, and (2) individuals who are beneficial owners or entity applicants for multiple entities will only have to report their identifier number, rather than being required to upload identifying documents for each entity with which they are associated.

Steps to Prepare for CTA Compliance

Given the difficulties of identifying all the entities and persons that will have to report, we suggest that you begin now to assemble a list of every privately held entity that you own an interest in or exert control over. You should try to obtain a copy of the certificate that was filed with the state where the entity was formed as well. Additionally, we recommend that beneficial owners and entity applicants of multiple entities obtain FinCen Identifier Numbers due to the advantages outlined above.

Conclusion and Recommendations

Because we may have formed entities years or decades ago, we may not have accessible records to identify all such entities.  Keep in mind that you may have had other advisers form entities of which we are not aware. You may have even formed entities on your own.

In any case, we cannot undertake to find these entities for you or to prepare the forms required to report to FinCEN unless you separately engage us to do so.

More information on filing requirements, deadlines, and whether you will be required to file information can be found on FinCen’s website under the “Beneficial Ownership Information” portal at www.fincen.gov.

If you do wish to engage us to help with this new requirement, please contact us.