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K&C Client Alert – Corporate Transparency Act

By Commercial, Mergers, Acquisitions & Strategic Alliances, Estate, Trust & Wealth Transfer, Business Taxation, Consumer Finance, Corporate & Public Finance, Health Care, ESOPs & Employee Benefits, Real Estate Strategies Group

Overview

The Corporate Transparency Act (CTA) comes into effect January 1, 2024, imposing significant reporting obligations for millions of privately held entities, called Reporting Companies. The CTA was designed to increase transparency in the structure of these entities to combat tax fraud, money laundering, and other illegal activities. Reporting Companies must report company ownership information to the Financial Crimes Enforcement Network (FinCEN), a division under the U.S. Treasury.

What is a Reporting Company?

Reporting Companies include any corporation, limited liability company, or other similar entity created by filing documentation with the secretary of state or similar office of any U.S. state or territory, or formed under the laws of a foreign country and registered to do business in the U.S. Following the CTA reporting obligations will therefore cover most entities, unless they fall within one of the 23 narrow exceptions:

Securities reporting issuer
Governmental authority
Bank
Credit union
Depository institution holding company
Money services business
Broker or dealer in securities
Securities exchange or clearing agency
Other Securities Exchange Act of 1934 registered entity
Investment company or investment adviser
Venture capital fund adviser
Insurance company
State-licensed insurance producer
Commodity Exchange Act registered entity
Accounting firm
Public utility
Financial market utility
Pooled investment vehicle
Tax-exempt entity
Entity assisting a tax-exempt entity
Large operating company
Subsidiary of certain exempt entities
Inactive entity

(See the FinCEN Beneficial Ownership Information Reporting FAQ for more detail on exemptions.)

Who is a Beneficial Owner?

Reporting Companies must provide beneficial ownership information. A beneficial owner includes any individual who, directly or indirectly, either (1) owns at least 25% of the ownership interests of the Reporting Company or (2) exercises substantial control over the Reporting Company. An individual may have substantial control if they are a senior officer, have authority to appoint or remove certain officers or directors, or is considered an “important decision-maker” over the Reporting Company.

What type of Information does a Reporting Company or Beneficial Owner Provide?

A Reporting Company must report its legal name, any trade name(s), principal place of business, jurisdiction of formation or registration, and tax identification number. Reporting Companies must report each beneficial owner’s name, date of birth, residential address, and an identifying number from an acceptable identification document such as a U.S. driver’s license or passport.

Are Trusts Considered Reporting Companies and/or Beneficial Owners?

A trust may be considered a beneficial owner if it satisfies either the 25% ownership or substantial control tests. If a trust is considered a beneficial owner, the following individuals may also be considered beneficial owners:

All trustees with the ability to dispose of trust assets;
A grantor of a revocable trust;
A grantor of a grantor trust with the right to substitute assets;
A beneficiary who is the only person with a right to receive distributions of income and principal;
A beneficiary who has a general power of appointment over the trust assets.

When Must I Report Beneficial Ownership to FinCen?

Reporting Companies created in 2024 will have 90 Days to file beneficial ownership information with FinCEN. Reporting Companies already in existence prior to 2024 will have until December 31, 2024 to file. Reporting will be done online through a secure filing system known as BOSS (Beneficial Ownership Secure System) accessed via FinCEN’s website at BOI E-FILING (fincen.gov).

(See the FinCEN Beneficial Ownership Report Filing Dates for more information.)

What about Changes in Ownership or Inaccurate Reporting?

Future changes to beneficial ownership information of Reporting Companies must be reported to FinCEN within 30 days of the change becoming effective. Additionally, corrections to previously filed reports must be reported within 30 days of becoming aware of or having reason to know of an inaccuracy.

Who can access Beneficial Ownership Information?

FinCEN is required to maintain beneficial ownership information in a secure nonpublic database. FinCEN will permit Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.

What if a Reporting Company does not timely file its beneficial ownership Information?

A person who willfully fails to report beneficial ownership information to FinCEN may be subject to civil penalties of up to $500 each day the violation continues. Said person may also be subject to criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000. Both individuals and corporate entities can be held liable for willful violations.

How Kaufman & Canoles can assist

Some clients can handle reporting themselves. Based on presently available information, this process should not be too burdensome or time-consuming for any single Reporting Company. However, clients with numerous legal entities may face administrative challenges. We are available to:

Answer your questions as you file your reports.
Review your reports before you file them.
Help you prepare reports for filing.

We will not file reports for you unless we have specifically agreed to do so in an engagement letter, or other written agreement with you.

For additional assistance

If you would like our assistance with any aspect of the Corporate Transparency Act or its reporting requirements, please contact your relationship attorney or email our CTA Compliance Team at CTAcompliance@kaufcan.com and one of our compliance specialists will get back to you.

FINCEN BENEFICIAL OWNERSHIP INFORMATION REPORTING FAQ

FINCEN BENEFICIAL OWNERSHIP REPORT FILING DATES

FINCEN BENEFICIAL OWNERSHIP REPORTING KEY QUESTIONS

SMALL ENTITY COMPLIANCE GUIDE FOR BENEFICIAL OWNERSHIP INFORMATION AND REPORTING REQUIREMENTS