Starting on January 1, 2024, under a new law called the Corporate Transparency Act (CTA), owners of certain business entities must file a report with the federal government including 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 have an entity (corporation, limited liability company, family limited partnership, etc.) 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.
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.[1] The following information about the reporting company must be included in the report[2]:
● 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% or more ownership interest) in the reporting company or who exercise substantial control over the reporting company[3]:
● 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.
Does the CTA impact you?
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.[4]
Complying with the requirements of the CTA is of the utmost importance if you own a business entity or have one as part of your estate plan. We routinely create entities that might qualify as reporting companies as part of our clients’ estate plans. These include LLCs and family limited partnerships.
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. For entities created before January 1, 2024, submit the initial reports for each reporting company by January 1, 2025. The current requirement for reporting companies that are created after January 1, 2024, is that the initial report is due within 30 days of the entity’s creation. Please note, however, that a new rule has recently been proposed that would temporarily extend this deadline from 30 to 90 days for business entities formed during 2024. If implemented, this rule would allow additional time to understand and comply with the new requirements.
Having a business entity as part of your estate plan can be an excellent tool depending on your unique situation. If you currently have one of these entities or are considering forming one, 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] 31 U.S.C. § 5336(a)(11).
[2] 31 C.F.R. § 1010.380(b)(1)(i).
[3] 31 U.S.C. § 5336(b)(2)(A).
[4] Id. § 5336(a)(11)(B)(xxi).