Starting on January 1, 2024, a new law called the Corporate Transparency Act (CTA) requires owners of certain business entities to file a report with the federal government and provide details regarding the ownership of their entity. The CTA was enacted to help combat money laundering, financing of terrorism, tax fraud, and other illegal acts. If you are a business owner (limited liability company, family limited partnership, corporation, etc.) and have included your business ownership as part of your existing estate plan, this is important information you will need to know to ensure that you comply with the new law.
Many business regulations apply only to large businesses, but the CTA specifically targets smaller entities. If you own a small business, you may be subject to this act unless your business falls under one of the stated exemptions, which primarily apply to industries that are already heavily regulated and have their own reporting requirements. Your business may also be exempt from the reporting requirements if it employs more than 20 full-time employees, filed a return showing more than $5 million in gross receipts or sales, and has a physical office located within the United States.[1]
What is the Corporate Transparency Act?
The CTA is a law that requires business entities it identifies as reporting companies to disclose certain information about the company and its owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Under the CTA, a reporting company is defined as a corporation, limited liability company (LLC), or other similar entity (i) created by filing a document with the secretary of state or a similar office under the laws of a state or Indian tribe or (ii) formed under the laws of a foreign country and registered to do business in the United States.[2] The following information about the reporting company must be included in the report[3]:
- company’s legal name and any trade names or doing business as (d/b/a) name
- street address of the principal place of business
- jurisdiction where the business was formed
- tax identification number
Additionally, the reporting company must provide the following information to FinCEN about its beneficial owners, defined as persons who hold significant equity (25 percent or more ownership interest) in the reporting company or who exercise substantial control over the reporting company[4]:
- full legal name
- date of birth
- current address
- unique identification number from an acceptable identification document
For reporting companies created on or after January 1, 2024, the same information must be provided about the company’s applicant, who is the person that files the creation documents for the reporting entity.
Note: Although a trust is not considered to be a reporting company under the CTA, if your trust owns an interest in a reporting company, such as an LLC, certain information about your trust may also have to be disclosed under the CTA because it may be deemed to be a beneficial owner.
What do you have to do to comply with the CTA?
In order to comply with the act, you should gather the required information for all reporting companies you own and all other beneficial owners. The good news is that existing business owners have ample time. For entities created before January 1, 2024, the deadline for submitting the initial reports for each reporting company is not until January 1, 2025.
For entities created on or after January 1, 2024 and before January 1, 2025, however, the initial report is due within 90 days of the entity’s creation.
Entities created on or after January 1, 2025, will have only 30 days to submit the reports.
We routinely create entities that might qualify as reporting companies as part of our clients’ estate plans. If you have an entity as part of your estate plan, for example, to hold out-of-state real estate or valuable tangible personal property, receive valuation discounts, or protect assets, you may be required to comply with the CTA. Similarly, if you’ve not yet created your estate plan, but currently are an owner of a small to mid-sized business, or are considering forming one, you will need to understand your reporting requirements. Either way, please reach out to us to discuss next steps to ensure that you fully comply with the requirements of the CTA. Give us a call to schedule an appointment.
[1] Id. § 5336(a)(11)(B)(xxi).
[2] 31 U.S.C. § 5336(a)(11).
[3] 31 C.F.R. § 1010.380(b)(1)(i).
[4] 31 U.S.C. § 5336(b)(2)(A).