By Senior Tax Manager Samantha Guis & Partner & Practice Leader of International Tax Lisa Goldman
The new filing requirements are nothing out of the ordinary in our ever-changing world of reporting standards. The Corporate Transparency Act (CTA) introduces fresh reporting obligations for companies established or registered to operate in the United States. However, as is often the case with new regulations, the affected populations appear to be broader than the stated purpose. This initiative primarily aims to combat money laundering, shell companies, fraud, and asset concealment. Failure to comply can lead to substantial penalties, including fines of up to $10,000 and imprisonment of up to two years.
Who Needs to File?
These reporting requirements apply to both domestic and foreign companies classified as reporting entities. A reporting entity includes corporations, limited liability companies (LLCs), and similar entities established or registered to conduct business in the United States.
There are 23 exemptions from filing, as detailed on the FinCEN website.
One potentially significant exemption pertains to the “large operating company” exemption, which is applicable to an entity meeting the following criteria:
- Directly employs more than 20 full-time employees within the United States (not on a consolidated or affiliated basis).
- Submitted a federal income tax or information return in the previous year in the United States, reporting gross receipts or sales exceeding $5,000,000.
- Maintains a physical office presence within the United States.
Furthermore, entities whose ownership interests are controlled or wholly owned, either directly or indirectly, by specific types of exempt entities (excluding money services businesses, pooled investment vehicles, or entities assisting tax-exempt entities) are also exempt from CTA reporting requirements. However, the precise scope of this exemption remains unclear.It should be noted that even an exempt entity can become non-exempt. It is essential to pay close attention to organizational charts to ensure that all applicable companies are filed.
What needs to be reported?
Once the entity establishes the need for reporting, beneficial owners who need to be reported include individuals who have substantial control over the entity, those who directly or indirectly own at least 25% of the entity, and company applicants. Substantial control can extend to senior officers with decision-making authority, individuals with the ability to appoint or remove key figures in businesses, and important decision-makers, which may include lawyers or accountants. Ownership of at least 25% can be direct or indirect through equity, stock, voting rights, and more. Company applicants are only applicable to entities established before January 1, 2024, and should not exceed two individuals who need to be reported.
Once the entity and its beneficial owners are determined, the following information will be required for filing:
For the entity:
- Legal name and any doing business as name(s)
- Current address of the principal place of business
- Jurisdiction of formation or registration
- Identification number
For each beneficial owner and company applicant:
- Individuals Name
- Date of Birth
- Address
- ID Verification – with an image of the chosen ID to be attached. The ID can be one of the following:
- Non-Expired US driver’s license
- Non-Expired document issued by State, Government, or Indian Tribe
- Non-Expired US passport
- Non-Expired passport by foreign government
The Financial Crimes Enforcement Network (FinCEN) will collect these forms from filers via a secure online filing system. There is no filing fee, and filing commences on January 1, 2024. For filers in existence before January 1, 2024, the deadline for the initial filing is January 1, 2025. For filers established on January 1, 2024, or later, there is a 30-day window to file based on the effective creation/registration date or formal notice from the government (whichever comes first).
When to File?
This is not an annual filing requirement; however, updated forms must be filed within 30 calendar days of any changes in beneficial ownership or entity details. Common changes may include a change in CEO, the sale of the business, or the passing of an owner. Other changes could involve updates to the business’s information, such as a new address or beneficial owners providing new ID documents after the expiration of their previous ones. An update is NOT required regarding a company applicant.
The new reporting requirements under the CTA will impact many companies and necessitate a significant amount of information collection and analysis. It is strongly recommended to seek legal counsel to determine your filing obligations.
November 29, 2023 update from FinCEN: Companies beginning on or after January 1, 2024 will now have 90 days instead of 30 day to file their initial beneficial owner forms. This 90-day extension will help prevent the need for amended forms to correct information as the form rolls out for filing.
If you have any questions, feel free to contact Senior Tax Manager Samantha Guis at sguis@saxllp.com or Partner & Practice Leader of International Tax Lisa Goldman at lgoldman@saxllp.com.