This post alerts you of a new Federal law, called the Corporate Transparency Act, which will impact almost all LLCs, corporations, limited partnerships, and other closely held entities. There are a few exceptions. The law becomes effective January 1, 2024, so you will need to be prepared.
Exempted from this requirement are entities such as the following. These are generally entities that are already subject to significant reporting requirements:
• An issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934.
• Bank, credit union or depository institution.
• Money transmitting business registered with FinCEN.
• Broker or dealer in securities.
• Investment company or investment adviser.
• Insurance company.
• A futures commission merchant.
• Any public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act.
• Public utility.
• Pooled investment vehicle.
• Tax exempt entity that is described in section 501(c) of the Internal Revenue Code (“Code”).
• A political organization as defined in section 527(e)(1) of the Code.
• A trust described in paragraph (1) or (2) of section 4947(a) of the Code.
The purpose of the CTA is to create a national database of companies in the U.S. that identifies the human beings behind the companies as owners or control persons. The law is part of an increasing effort to combat money-laundering, terrorism, tax evasion and other financial crimes. Congress intended to try to help law enforcement by creating this national database of organizations that might be involved in such activities, but it will apply even if the entity is not so involved.
The Financial Crimes Enforcement Network (“FinCEN”), which is a bureau of the United Stated Treasury Department but is not part of the IRS, will be in charge of creating and maintaining the database, which as of now will not be of public record but available to a variety of agencies and possibly others in the future. All “reporting companies” will be required to file reports with FinCEN that provide certain information regarding the companies and “beneficial owners” of the companies – the humans behind the companies.
This new law will affect virtually all small family businesses, including even LLCs and other entities designed only to hold real estate and conduct no active business activities. Even if an entity has only one owner and that entity is ignored for Federal income tax purposes (such as a single-member LLC), that entity still will have to file reports with FinCEN.
The rule goes into effect January 1, 2024. For entities that already exist by that date, their initial reports are due by January 1, 2025. For entities created on or after that date, their initial reports are due within 30 days from the creation of the entity. As of now, there are no extensions available. There are stiff civil and criminal penalties for failing to file – this is not something that can be missed.
If you have any interest in a closely held entity, such as an LLC, corporation, or limited partnership, or if you exert significant control over any such entity (which might include any officer, director, manager, chief financial officer or investment trustee) then you may be subject to these requirements. If so then you may be responsible for filing reports with FinCEN.
Given the difficulties of identifying all the entities and persons that will have to report, we suggest that you begin now to assemble a list of every privately held entity that you own an interest in or exert control over. You should try to obtain a copy of the certificate that was filed with the state where the entity was formed as well. Because we may have formed entities years or decades ago, we may not have accessible records to identify all such entities. In any case, we do not accept responsibility to attempt to obtain or provide information about such entities unless we are specifically engaged in writing to do so. Also, you may have had other advisers form entities of which we are not aware. You may have even formed entities on your own. In any case, we currently will not be assisting clients with the filing requirements. You should seek assistance from your accountant/CPA or other professional to ensure the filing requirements are met.