Category Archives: Federal

What is the Corporate Transparency Act?

The Corporate Transparency Act is a federal law aimed at preventing money laundering that passed in 2021 and becomes effective January 1, 2024.  The penalties for failure to comply with the requirements potentially include a felony conviction, a $500 daily penalty up to $10,000, and up to two years of prison. Needless to say, compliance – if applicable – with the new reporting requirements is essential. 

Domestic corporations, LLCs and LLPs are “reporting companies” if created by filing with the secretary of state or tribal jurisdiction.  Foreign reporting companies are formed under the law of a foreign country and registered to do business in a state or tribal jurisdiction by a similar filing.  Sole-proprietorships that don’t use a single-member LLC are not considered a reporting company.

Many small business owners will be required to file a beneficial owner report for their companies’ LLC or corporation with FinCEN (the Department of the Treasury’s Financial Crimes Enforcement Network). FinCEN will keep the information gathered from these reports in a database for authorized government authorities and financial institutions to prevent money laundering. The database will not be viewable by the public. 

Who Is Required to File?

This requirement applies to all reporting companies, with some exceptions for large publicly-traded companies and businesses that meet all of the following criteria: 1) has more than 20 employees; 2) grosses more than $5 million annually; and 3) maintains a physical presence at a business office in the United States.

If your business is an LLC or corporation, including a single-member LLC, you are required to fill out this form by the end of 2024. If you create a new LLC or corporation in 2024, you must complete the report within 30 days of forming the new LLC or corporation. Any changes to beneficial ownership, name, or address must also be reported within 30 days. However, there is no annual reporting requirement. 

What Information is Required for Filing?

  • Its legal name and any trade name or dba;
  • Its address;
  • The jurisdiction in which it was formed; and
  • Its taxpayer identification number.

In addition, the following information will be required for each company’s beneficial owner:

  • Legal name;
  • Date of birth;
  • Address; and
  • An identifying number from a driver’s license, passport or other government-approved document for each individual, as well as an image of the document that the number is from.

What is the Corporate Transparency Act?

On September 29, 2022, the US Treasury Department Financial Crimes Enforcement Network, “FinCEN”, issued its final rule implementing requirements to report beneficial ownership information from certain entities under the Corporate Transparency Act.  The goal of this legislation is to fight the financing of terrorism and money laundering.  The rule takes effect on January 1, 2024.  Any “reporting company” existing or registered before then must file an initial report by January 1, 2025.  Any reporting company created or registered after January 1, 2024 must file its initial report within 30 days after creation or registration. 

What is to be reported? FinCEN is in the process of creating forms for this and will publish such in the Federal Register.  Failure to comply with the reporting requirements can lead to civil and criminal penalties including a maximum civil penalty of $500 per day, up to $10,000, and imprisonment for up to two years.

Who must report? Domestic companies including smaller corporations, limited liability companies, limited liability partnerships, limited liability limited partnerships, business trusts (statutory trusts or Massachusetts business trusts) and limited partnerships.  For example, if you have an LLC that owns a rental property, the LLC is a reporting company.  Foreign companies operating in the USA under the law of a foreign country and registered to do business in any state or tribal jurisdiction, or any entity created by filing a document with a secretary of state or similar state or tribal office, are also included.  

There are 23 categories of entities exempt from reporting.  It appears that most estate planning trusts will not have to report to FinCEN.  To be a reporting company the trust would have to file a registration document with a secretary of state or similar state or tribal office; most revocable and irrevocable trusts do not do this.  Charitable trusts are specifically exempt from reporting.

Even though most trusts will not qualify as reporting companies, the law impacts any entity with an ownership interest in a U.S. company, including foreign trusts.  Reporting companies must report to FinCEN each owner that owns more than 25% of the company, including trusts, regardless of where the trust is domiciled and whether it is registered with any secretary of state.