Update on the Corporate Transparency Act
This article is an update on the Corporate Transparency Act (“CTA”) which became effective on January 1, 2024. The CTA is enforced by the Financial Crimes Enforcement Network (“FinCEN”). It requires most U.S. entities and foreign entities registered to do business in the United States to file reports with FinCEN disclosing information about the entity and its beneficial owners (“BOI Reports”). There are substantial penalties for noncompliance.
What is the Corporate Transparency Act?
The CTA is a federal anti-money laundering law with the purpose of seeking out bad actors who seek to conceal their ownership of business entities to facilitate illegal acts such as money laundering and tax fraud. The new “transparency” afforded by the CTA requires broad disclosures under Federal law regarding the ownership of corporate entities.
Who has to file a BOI Report?
All entities, including domestic corporations, limited liability companies, limited partnership, and entities formed in foreign countries registered to do business in the U.S. are required to file a BOI Report unless the entity qualifies for an exemption.
Who is exempt from filing a BOI Report?
While there are 23 exemptions, most exempt categories apply to entities that are already subject to substantial federal or state regulation. There is also an exemption for large operating companies. What information is required on the BOI Report?
A significant amount of information about the business, and its owners who own or control at least 25% of the ownership interests of the subject business, is required.
When is the BOI Report due?
For entities created before January 1, 2024, the initial BOI Report must be filed by January 1, 2025. For entities created on or after January 1, 2024, the initial BOI Report must be filed within 30 calendar days of the date on which it receives notice that its creation has become effective. BOI Reports must be updated when there is a change in the information reported about the company or its beneficial owners.
What should businesses do to comply with the CTA?
It is recommended that all businesses seek the advice of legal counsel to determine if their business is a reporting entity under the CTA. The business can then work with its legal counsel to determine what information needs to be reported and when.
Updates
In March of 2024, a Federal Court in Alabama ruled the CTA to be unconstitutional, because it found that the CTA exceeded Congress’ enumerated powers under the Constitution. However, the ruling is limited to the parties to that case and does not excuse compliance by anyone not directly involved in that case from full compliance with the CTA.
New guidance issued by FinCen clarifies that a beneficial owner under the CTA will always be a natural person and that intermediate entities do not need to be reported as beneficial owners. It explicitly states that trusts, corporations, and legal entities do not constitute beneficial owners. A reporting company may identify a corporate trustee as a beneficial owner only in limited circumstances.
VRS has extensive experience representing business, which includes providing advice on entity compliance, and is available to answer any questions regarding the CTA and how businesses can comply with the CTA.