The Corporate Transparency Act of 2020 (the “CTA”) is a newly enacted federal statute that will be implemented and enforced by the United States Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). FinCEN is now in the process of drafting regulations that will enforce and define the reporting requirements of the CTA. The CTA will require certain business entities to file reports with FinCEN that identify (1) the “beneficial owners” of an entity and (2) individuals who formed the entity or registered it to do business.
Ostensibly, the CTA was passed to cut down on opportunities for “corrupt actors, criminals, and terrorists to remain anonymous while facilitating illicit activity through legal entities.” However, many are raising questions as to whether the approach is anything more than an oversized hammer trying to hit a particularly small nail.
If you own a limited partnership, limited liability partnership, limited liability company, business trust, subchapter S corporation, or a traditional corporation (to name a few) must report the following information to FinCEN:
Furthermore, and perhaps most troubling, is that in addition to the company information that must be disclosed under the CTA, anyone who qualifies as a “beneficial owner” must disclose personal information to FinCEN. A “beneficial owner” is defined as “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least twenty-five percent of the ownership interests” of the company.
Business owners must disclose the following information to FinCEN:
On their face, these reporting requirements seem to be no more stringent than the disclosures typically required for the formation of a company; however, these disclosures appear to be extremely burdensome, especially for family farms with owners spread out across the country, and the reporting obligations imposed on reporting companies regarding the individual professionals who organize those companies (lawyers, accountants, business planners) are clearly meant to compel those professionals to disclose the beneficial owners, or face penalties.
The short answer is, no, not yet. FinCEN has yet to promulgate final rules regarding the implementation of the CTA. However, if you are thinking of starting a new state-registered corporate entity or already own one, consider checking in with your legal or business adviser and ask them to keep you informed.
Eventually, however, the initial report for new companies will have to be filed within 14 days of the date of formation, and for existing companies no later than one year after the effective date of FinCEN’s final regulations. Furthermore, reports must be updated within 30 days after “any change” in information previously reported and within 14 days after any errors are detected on the initial report.
FinCEN's proposed rules define a “company applicant” as any individual who files the documents creating a company required to file a report under the CTA, including any individual who directs or controls the filing of said documents by another person. This means that if an associate attorney files the articles of incorporation for a new corporation, not only will that associate be subject to the “company applicants” reporting requirement, but so will a partner or senior individual who directs the activities of the associate.
Company applicants are required to submit the same information as a beneficial owner, above – something that is sure to cause a headache for attorneys across the nation.
Be sure to check back here in the future for any updates.
NOTICE: This article does not constitute legal advice and no attorney-client relationship has been formed with any individual or entity by its posting. If you have questions about the CTA or its potential implications for you or your business entity, consult with a lawyer professional who can tailor their advice to your specific circumstances.
Author: Justin D. Barbour (04/12/2022)
The "Families First Coronavirus Response Act" provides tax credits for paid sick and family leave for employers with 500 or fewer employees. Your small business or agribusiness may qualify for employee payroll or self-employment tax credits through December 31st, 2020.