You Can No Longer Ignore the CTA!
By Scott A. Dondershine
December 28, 2023
You have probably seen a zillion blogs on this, but it appears as if the Corporate Transparency Act (“CTA”) is here to stay. Although our article published in July 2022 detailed some of the finer points (see Reston LG July 2022 Article) a few are worth reiterating since the reporting obligations start in 2024.
Congress enacted the CTA as a tool of the Financial Crimes Enforcement Network (“FinCEN”) “to help prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity”. Any willful failure to comply with the CTA’s reporting requirements can result in significant civil and criminal penalties.
Most small businesses created or registered to do business in the United States (“reporting companies”) will have to report certain information to FinCen about any “beneficial owners” and “company applicants”. Reporting companies existing prior to January 1, 2024 have until the end of 2024 to make their initial filing to FinCen. However, reporting companies formed in 2024 have 90 days to make the initial report while companies formed after 2024 have only thirty days.
While FinCen has not yet finalized the process for making submissions, we recommend that every business prepare as follows:
(1) Determine if the business is a reporting company and, if so, identify all beneficial owners. A beneficial owner is generally any individual who, directly or indirectly, either (a) exercises substantial control over a reporting company or (b) owns or controls at least 25% of the ownership interest in the reporting company.
(2) Compile the required information about each beneficial owner, i.e., name, address, date of birth, and acceptable form of identification.
(3) Develop a system to track any change in beneficial owners or any information pertaining to a beneficial owner. Changes must be reported to FinCen within 30 days after the change occurs.
(4) For any business created in or after 2024, compile the required information about any company applicant, i.e., name, address, jurisdictional information, and taxpayer identification number for any individual who directly files (and if applicable, the person directing/controlling such filing) the document that creates or registers the reporting company. Businesses created before 2024 do not need to provide information about company applicants.
In addition to the requirements imposed by FinCen, certain states (most notably, New York and California) have begun to pass or have proposed their own statutes imposing state requirements. We recommend that all businesses begin the process of satisfying any requirements under the CTA or state equivalents.
DISCLAIMER. This Client Alert does not provide legal advice. We are providing it for general informational purposes only.