FOS has closely monitored activity related to the federal Corporate Transparency Act (CTA), which requires certain entities to report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).
The reporting deadline of January 1, 2025 is almost here for entities formed before January 1, 2024.
Entities formed on or after January 1, 2024 and before January 1, 2025 should already be complying with their 90-day post-organizing deadline to file reports.
Entities formed on or after January 1, 2025 will have 30 days after formation to file reports.
Many professionals had hoped that the January 1, 2025 deadline would be extended until various lawsuits challenging the law’s constitutionality are resolved. Unfortunately, that has not happened, and no court has issued a nationwide injunction precluding the law’s enforcement.
As such, the January 1, 2025 deadline remains for pre-2024 created covered entities, except for those exempt as discussed below. For those required to comply, a compliance plan is needed for the imminent reporting requirements. If they have not already done so, businesses should determine now whether they are subject to or exempt from the reporting requirements.
What entities must file CTA reports?
Most organized entities, such as corporations, limited liability companies, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships, will be considered a reporting company under the CTA. The question will be whether such an entity is subject to an exemption from the reporting requirements.
What entities are exempt from the reporting requirements?
The CTA outlines twenty-three types of entities exempt from the definition of “reporting company,” and so not subject to the law’s reporting requirements. The primarily applicable exemptions are listed below:
- Large Operating Company: To qualify, a reporting company must meet all of the following requirements:
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- Has filed a federal tax return in the U.S. (for the previous year) demonstrating more than $5 million in gross receipt or sales, excluding gross receipts or sales from sources outside the U.S. (Businesses should confirm more than $5 million was reported on the entity’s IRS Form 1120, consolidated IRS Form 1120-S, IRS Form 1065, or other applicable IRS form);
- Employs more than 20 full-time employees (employed an average of at least 30 hours of service per week) in the U.S.; and
- Has an operating presence at a physical office within the U.S.
- Subsidiary of Certain Exempt Entities: This exemption applies to some, not all, of the twenty-three exemptions, including large operating companies and tax-exempt entities. As to those, the exemption applies if the reporting company’s ownership interests are 100% controlled or owned, directly or indirectly, by one or more specifically-listed exempt entities. III III
- Tax Exempt Entity: This exemption applies to certain tax exempt entities, including those under § 501(c) (determined without regard to §§ 508(a) and 501(a)) of the Internal Revenue Code, political organizations, and certain trusts. III III
- Inactive Entity: This exemption applies to an entity which existed on or before January 1, 2020; is not engaged in active business; does not directly or indirectly have foreign ownership; has not experienced any change in ownership in the past 12-months; has not sent or received more than $1,000 in the preceding 12 months; and does not otherwise hold any type of asset, including ownership interest in another entity.
What Information Must Be Reported?
If an entity is a reporting company that is not exempt from the CTA’s reporting requirements, the question is what that entity must report by the required deadline.
Generally, the entity must report information about itself, including its full legal name, including any trade name; complete current U.S. address; state, tribal, or foreign jurisdiction of formation; and IRS taxpayer identification number, including employer identification number.
The company must also report information about its beneficial owners and company applicants. Beneficial owners are individuals who directly or indirectly (1) exercise substantial control over a reporting company; or (2) own or control at least 25 percent of a reporting company’s ownership interests. A company applicant includes the individual who filed the application to create the entity or registered it to do business in the U.S., and the individual primarily responsible for directing or controlling that filing (if more than one individual participates).
A beneficial owner and company applicant must report their full legal name; date of birth; and current residential street address. Each must also submit a copy of their unexpired, government-issued identifying document containing a unique identifying number (an unexpired U.S. passport or state driver’s license).
If previously reported information about the reporting company itself or its beneficial owner(s) changes, a reporting company must submit an updated report within 30 days after the change. Additionally, a reporting company must correct inaccurate information previously filed within 30 days after the reporting company becomes aware of the inaccuracy.
CTA reports can be filed on FinCEN’s website, https://www.fincen.gov/boi.
For additional questions about the CTA and/or your company’s obligations, contact your FOS attorney.
