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Halloween is next week, the Presidential Election is in two weeks, the Thanksgiving turkey will be in the oven in about a month, and Santa Claus is coming down the chimney in two months.

The end of the year will be here before you know it, and it’s time for businesses to play nice, not naughty with the Financial Crimes Enforcement Network (“FinCEN”) and its reporting obligations under the Corporate Transparency Act (“CTA”).

The CTA – a federal law that requires businesses to disclose and report information about their owners and controllers to FinCEN – has a looming deadline of Jan. 1, 2025, for businesses that existed prior to Jan. 1, 2024. Required Beneficial Ownership Information (“BOI”) includes the names, addresses, and dates of birth of individuals who own 25% or more of a legal entity, those with substantial control of the entity, and those who filed the formation documents creating or registering the company with the state (the “Company Applicant”).

FinCEN has set up the BOI E-Filing system at: https://boiefiling.fincen.gov/.

Failure to comply with the reporting requirements of the CTA may result in significant civil penalties of $500 per day (up to $10,000) and imprisonment for up to two (2) years for willful violations. Non-compliant entities could face restrictions on their ability to conduct business with financial institutions.

This critical reporting obligation applies to many U.S. corporate entities as a “Reporting Company” defined by FinCEN includes corporations, small businesses, limited liability companies (LLCs), and similar entities formed under state law, which do not meet one of the delineated twenty-three (23) exemptions; this even includes companies formed this year that were dissolved.

The CTA lists twenty-three (23) exemptions, such as companies in heavily regulated industries, like federal and state credit unions, certain banks, insurance companies, and established tax exempt organizations. Another common exemption is the Large Operating Company exemption, as defined in the CTA as having (1) at least 20 full-time employees, (2) more than $5 million in gross receipts or sales (on the latest tax return), and (3) an operating presence at a physical office within the United States. We recommend companies do not assume this exemption applies as the analysis is proving to be nuanced.

Take the Proactive Steps to Report and Comply by Jan. 1

Businesses that are unsure about their compliance obligations should consult with legal or financial professionals to ensure timely compliance.

Legal or financial professionals can assist businesses on determining whether their company is a “reporting company” for purposes of the CTA, or if their company is exempt from CTA reporting obligations. Counsel can also determine companies’ beneficial ownership for CTA reporting purposes and guide businesses through reports or updates thereto required by the CTA.

Here are some proactive steps that businesses can take to ensure they are in full compliance with the CTA and to avoid any penalties by missing the upcoming deadline:

  1. Assess Beneficial Ownership: Identify all individuals who own twenty-five percent (25%) or more of the company or have substantial control of the company.
  2. Collect Necessary Information: Gather the required information for each beneficial owner, including their name, address, and date of birth. A Reporting Company is required to report its legal name, any trade name or assumed name (DBA), its address, the jurisdiction in which it was formed or first registered; and its taxpayer identification number. A beneficial owner and each company applicant of a reporting company will be required to file a BOI Report that includes the individual’s full legal name, birthdate, residential address, the unique identifying number from a non-expired driver’s license, identification document, or U.S. passport, and an image of the identification document.
  3. Submit Report: File the required report with FinCEN before the January 1, 2025, deadline for businesses existing prior to January 1, 2024. If your business was formed in 2024, you have 90 days from the date of formation to file (which drops to 30 days on January 1, 2025).

CTA went into Effect on Jan. 1, 2024

The Corporate Transparency Act (CTA) was enacted by Congress in 2021, as an expansion of the anti-money laundering laws, intended to prevent terrorist financing, corruption, tax fraud, and other illicit activity. It went into effect on Jan. 1, 2024.

Before this act, there was no general federal registry, and few states required companies to disclose this kind of ownership information.  Proponents of the CTA argue the updated transparency requirements will prevent bad actors from utilizing corporate structures such as shell companies for illicit purposes. Nonetheless, this regulation creates an additional burden on all entrepreneurs, business owners, and leaders to collect the pertinent information and file reports with the government. Impacted businesses now have a federal reporting requirement in addition to their state reporting requirements.

Throughout the year FinCEN has published CTA key terms and definitions, CTA FAQs, and a “BOI Small Entity Compliance Guide” to assist businesses to navigate through the CTA process.

Adams and Reese will keep you updated on all CTA updates from FinCEN as the deadline further approaches.

Time is running out. The Christmas tree lots and firework stands are right around the corner, and so is this critical CTA deadline.

About Our Authors

Sean Buckley is a corporate services attorney in the Adams and Reese Houston office. Sean advises clients on a wide array of corporate matters, including the purchase and sale of equity and assets, and in a diverse array of industries, including real estate transactions, entity selection and formation, corporate governance, and franchise opportunity matters.

Brian Smithweck is a corporate services attorney in the Adams and Reese Mobile office. Brian practices in the areas of corporate, partnership and limited liability company planning, estate planning, probate, trusts and estates, M&A, tax planning and tax controversies. He represents businesses, individuals and families. He has a Master of Laws in Taxation.

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