Understanding the Corporate Transparency Act and FinCEN Beneficial Ownership

Submitted by Anthony Brunson, P.A.

Overview

The Corporate Transparency Act (CTA) took effect in 2024, requiring over 30 million businesses to either submit a beneficial ownership report to the U.S. Department of Treasury or claim an exemption. Unless they qualify for a specific exemption, January 1, 2025, is the final filing deadline for businesses formed before 2024.

As this deadline nears, it is important to establish if your organization is subject to these reporting requirements and, if it is, to understand the required disclosures. These include beneficial ownership details, information about the organization’s creator or registrant in the United State, and any updates to this information, which has to be submitted to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) within a stated timeframe to prevents significant penalties being levied.

Businesses operating in the United States are mandated by the CTA, to report information to FinCEN about who effectively owns or controls them. Keep reading to gain insights on the key components of the CTA, particularly focusing on beneficial ownership reporting requirements, exemptions, compliance obligations, penalties, and considerations for long-term owners and operators.

The CTA requires certain entities to disclose information about their beneficial owners to FinCEN. Beneficial owners are individuals who, directly or indirectly, own or control a significant percentage of an entity, or who exercise substantial control over it. This legislation marks a significant shift in how businesses are required to report ownership, enhancing the federal government’s ability to prevent financial crimes.

Beneficial Ownership Reporting Requirements

Under the CTA, reporting companies must submit the following information about their beneficial owners to FinCEN:

1. Full Name: The complete legal name of the beneficial owner.
2. Date of Birth: The owner’s date of birth.
3. Address: A residential or business address.
4. Identification Number: Either a driver’s license number, passport number, or another unique identifying number issued by a government authority.

Reporting Companies

The CTA applies to various types of entities, including corporations, limited liability companies (LLCs), and other similar entities created by filing with a state or tribal authority. However, certain exemptions apply.

Exemptions and Filing Obligations

Exempt Entities

Certain entities are exempt from the reporting requirements under the CTA. These include:

Large Operating Companies: Entities with over 20 employees, more than $5 million in gross receipts, and a physical presence in the U.S.

Entities Regulated by Federal Agencies: Banks, credit unions, insurance companies, and investment companies that are already subject to federal regulation.

Tax-Exempt Entities: Organizations recognized as tax-exempt under the Internal Revenue Code.

Certain Trusts: Trusts that are established for specific purposes and comply with certain regulations.

Filing Obligations

Reporting companies must file their beneficial ownership information at the time of formation or registration, as well as update their information annually or whenever there is a change in ownership. This ensures that the data remains current and accurate.

Compliance and Penalties

Failure to comply with the CTA can lead to severe penalties. Companies that do not report their beneficial ownership information may face:

Civil Penalties: Fines up to $500 per day for each day the violation continues.

Criminal Penalties: Individuals can face fines of up to $10,000 and/or imprisonment for up to two years for willfully providing false information or failing to report.

These penalties underscore the importance of compliance for all reporting entities.

Special Considerations for Long-Term Owners and Operators

Long-term owners and operators must navigate unique considerations under the CTA:

1. Accurate Reporting: Owners who have held interests for extended periods must ensure that their reporting reflects any changes in ownership structures or control dynamics.
2. Record-Keeping: Maintaining thorough records of ownership and control can streamline the reporting process and facilitate compliance with the CTA.
3. Advisory Roles: Long-term stakeholders should engage legal and financial advisors to understand their obligations and ensure they meet reporting requirements.
4. Transition Period: As the CTA comes into full effect, long-term owners should be aware of the timeline for compliance and any changes in their reporting obligations.

Key Dates

Final Rule Implementation: FinCEN issued the final rule on beneficial ownership reporting in September 2022, outlining specific requirements for reporting companies.

Effective Date: The reporting obligations officially began on January 1, 2024.

Initial Reporting Deadline: Existing companies will need to report their beneficial ownership information by January 1, 2025.

Ongoing Reporting: Companies must update their information within 30 days of any changes in beneficial ownership.

Conclusion

The Corporate Transparency Act represents a critical step toward enhancing corporate accountability and transparency in the United States. By understanding the beneficial ownership reporting requirements, exemptions, and compliance obligations, businesses can better navigate this regulatory landscape. As the CTA continues to evolve, staying informed and proactive will be essential for all reporting companies and their owners.