The deadline for compliance with the Corporate Transparency Act (CTA) is Dec. 31, 2024. The following is a summary of what you need to know about the Corporate Transparency Act.

The Corporate Transparency Act (CTA) requires most businesses to report the personal information of owners or controllers to the Treasury Department’s FinCEN by 12/31/2024. The information will be shared with federal and, in some cases, state agencies to help combat money laundering and crime. The filing, effective since January 2024, may take 1-3 hours for small business owners but could be more burdensome for real estate investors with multiple LLCs. Failure to comply could result in penalties of up to $10,000 in fines and two years in prison for non-compliance.

Now that the regulations are final, here is what you need to know about the CTA:

Key Concepts

Learn the definition of a “reporting company” – This determines what entities must take action.

Learn who is a “beneficial owner” – This determines whose personal information will be submitted to FinCEN.

Definition of a “reporting company”?

In general – Any entity that is formed by a filing with a Secretary of State, and certain foreign entities. 

Exceptions – There are a lot of exceptions, and one should take the time to read them at 31 USC 5336(a)(11)(b). 31 USC 5336: Beneficial ownership information reporting requirements.  Here are the most noteworthy exceptions: 

•    Entities that are not created by a filing with a Secretary of State.
•    General partnerships and trusts fall into this exception. (However, when a trust is an owner, its beneficiaries, trustee and/or trust advisor may be considered beneficial owners.)
•    Publicly traded companies.
•    Bona fide operating companies – This applies if you can establish these three facts: (1) you have more than 20 employees, (2) you had more than $5 million in gross receipts in the previous taxable year, and (3) you have a physical office in the United States.
•    Dormant entities – This applies if the entity is not engaged in active business, is not owned by any foreign person, holds no assets, and has not in the past 12 months either had a change in ownership or a transfer of funds exceeding $1,000.
•    501(c)(3) nonprofits. 

Definition of a “beneficial owner”? 

•    Someone who either owns 25% of the entity or exercises “substantial control” of the entity. 

Ownership 

•    Defined as broadly as possible, including convertible debt, profits, interests, options, and joint venture interests. Where the regulations don’t give an answer with reasonable certainty, then any person who holds 25% or more of any class or type of interest is a beneficial owner.
•    Substantial control – The regulations contain many different pathways, such as senior officers and anyone who has the authority to appoint a senior officer or majority of the board. o    Someone who directs major decisions.
o    A holder of majority of voting rights.
o    Any other contract, arrangement, understanding, relationship, or otherwise.

Who is a “beneficial owner”?

•    Excludes minor children, nominees, employees acting solely as an employee, and creditors 

What’s in the report? 

•    Information about the entity.
•    Company name, plus any DBAs.
•    Company address.
•    Tax identification number. (This may incentivize disregarded entities to obtain EINs.)
•    State of Formation.
•    Information about each beneficial owner.
•    Name, date of birth and address.
•    An image of either the beneficial owner’s passport, driver’s license, or state-issued ID card. 

If a beneficial owner itself is exempt, then only the beneficial owner’s name is required.

When is the report due? 

•    If formed before Jan. 1, 2024 – Report due no later than Dec. 31, 2024.
•    If formed between Jan. 1, 2024 and Dec. 31, 2024 – Report due within 90 days after the filing of the new entity is effective with the Secretary of State. (Each Secretary of State will be asked to remind filers of the CTA responsibilities.)
•    If formed on or after Jan. 1, 2025 – Report due within 30 days after the filing of the new entity is effective with the Secretary of State.
•    If entity loses its exemption after 1/1/24 – Report due within 30 days if loss of exemption. 

If information within report changes – Updated report due within 30 days of the change. 

If entity learns of an inaccurate report – Correct report due within 30 calendar days after the entity becomes aware or has reason to know of the inaccuracy.

Who can see the report?

•    Federal agencies engaged in national security, intelligence, or law enforcement activity, for furtherance of such activities.
•    Internal Revenue Service (IRS).
•    State agencies, as long as the request is coupled with a court order. 

What are the penalties? 

•    Penalties for failure to file, or filing a false report.
•    $500 per day civil penalty.
•    Fines up to $10,000.
•    Up to two years in prison. 

Safe harbor – If you correct an innocent mistake on a filed report within 90 days of the original filing, you are exempt from civil and criminal penalties. 

What can I do now? 

•    Make a list of all entities that you control or own. This will not necessarily match your tax return.
•    Connect with your lawyer for specific questions regarding compliance with the CTA, and you may wish to engage a law firm to get this done — and remember to comply with the CTA on future-created entities.
•    Dissolve or merge any entities that are not being used.
•    Discuss with legal counsel about utilizing a Series LLC structure to lessen current and future filing requirements. A Series LLC is considered as “one” entity.

Please consult with www.fincen.gov for specific filing instructions and information regarding compliance requirements. The Small Entity Compliance Guide is available at that website address. If needed, consult with your attorney for more information.

At www.fincen.gov you can also find the “Small Entity Compliance Guide – Beneficial Ownership Information Reporting Requirements. 

Don’t delay in getting this done; it’s very important to meet the full compliance requirements. If you have any questions, please contact your legal counsel for more information.

Call Keven Prather at (216) 592-7314, email kprather@financialguide.com, or visit www.TransitioNextAdvisors.com. Keven P. Prather is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC. www.sipc.org. OSJ: 1956 Carter Rd., Suite 200 Cleveland, OH 44113. 216.621.5680 TransitioNext Advisors® is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. These firms and their representatives do not provide legal or tax advice. Consult your attorney and/or accountant for such advice. CRN202711-7523817