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Corporate Transparency Act Reporting in 2024 (Yes, Even You)

Updated: Feb 13

The Corporate Transparency Act ("CTA") is a federal law that seeks to prevent money laundering, terrorist financing, tax evasion, etc. Congress adopted the CTA as part of the National Defense Authorization Act for Fiscal Year 2021 (over a presidential veto). As part of the CTA, the Financial Crimes Enforcement Network ("FinCEN") (a bureau within the US Treasury Department) has been charged with coming up with rules and regulations as CTA goes into effect. As of September 2022, FinCEN has now released those regulations, simply referred to in business and legal circles as "the Rule."


The Rule is about 200 pages long, but contains important changes to federal law. The most important change for small businesses, is that most entities will have to started disclosing specific information to FinCEN beginning in 2024. Please bear in mind that these are the broad strokes, and are subject to change before the Rule goes into effect.


What information must be disclosed?


"Reporting Companies" (those required to report under the Rule) must disclose the following information of the company itself and any "beneficial owner" (defined below): their name, address (business or residential), date of birth, and an identifier (for example, employer identification number). They will also need to provide photo identification that comes with that number (e.g., if it is a driver's license). There appears to be an option to obtain a FinCEN identifier in lieu of a personal identifier ("n certain circumstances," which do not appear to be outlined in detail as yet).


What is a "Reporting Company"?


A "Reporting Company" is any domestic entity formed or foreign entity registered in the United States with a state Secretary of State or similar state or tribal entity. Heckman Law, PC is a professional corporation formed by filing its articles with the California Secretary of State. Heckman Law, PC is thus a "Reporting Company."


Even my business?


Almost definitely. FinCEN estimates that the Rule will require some 32.6 million entities to disclose this information to FinCEN in the first year.

Your LLC, LLP, LP, corporation, nonprofit corporation, etc. is a "Reporting Company" unless it fits into one of the narrow exemptions.


Who is a beneficial owner?


A "beneficial owner" is one who (1) owns 25% or more of the Reporting Company, (2) directly or indirectly exercises substantial control over the Reporting Company, and (3) someone who forms an entity (or registers a foreign entity) on or after January 1, 2024.


What are the exemptions?


There are several limited exemptions. The big one is an entity that is owned or controlled by another exempt entity. However, most exemptions are not going to apply to most smaller businesses. This is because the exemptions include public companies, licensed insurance companies, banks, credit unions, and securities brokers. And the other big exemption is "truly dormant" entities. So if you are operating a business via an entity, you are going to have to report to FinCEN.


Does this burden small businesses more than big businesses?


In a way. A lot of larger businesses will fall into one of the exemptions, but those exemptions are largely limited to business types that already have substantial regulatory or reporting requirements.


When do I have to report?


For "Pre-Effective Entities" (those formed or registered before January 1, 2024), the filing must be before January 1, 2025.


For "Post-Effective Entities" (those formed or registered on or after January 1, 2024), the filing must be within 30 days of formation or registration. (EDIT: FinCEN recently proposed amending this 30-day period to 90 days from the date of formation)


How do I report?


FinCEN is still working this out. The draft form is available here as the Appendix, and comments are open. Those in the know anticipate that they will be finalized far in advance of the January 1, 2024 reporting deadline.


(Edited to indicate that the form is available for review and comment)


Conclusion


Mark your calendars. Your construction business, your talent agency, your law firm, your brokerage, your Etsy business... If you have a business entity, you will likely be subject to the new reporting requirements. Talk to your business or corporate attorney as soon as you have an opportunity regarding the reporting requirements.

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