New Year, New Reporting: Navigating the Corporate Transparency Act Requirements for your Trusts & Business

This new reporting requirement will affect legal entities that fall under the definition of a “reporting company” as defined in the Corporate Transparency Act. The term “reporting company” means a corporation, limited liability company, or other similar entity that is created by the filing of a document with a secretary of state or a similar office under the law of a State or Indian Tribe. If you had to file a document with a state or Indian Tribal-level office such as a secretary of state to create your company, then your company is a reporting company, unless an exemption applies.

The Corporate Transparency Act exempts 23 types of entities from the new reporting requirements. A list of exempt entities with detailed descriptions can be found in USCS § 5336(a)(11)(B). Exceptions include charities, large companies (with 20 or more full-time employees, that have filed a federal tax return for the prior year for more than $5 million in revenue, and have an operating presence at a physical office within the U.S.), certain types of other entities that already are subject to significant government regulation such as banks, and certain types of inactive entities without assets that were in existence on or before January 1, 2020, the date the Corporate Transparency Act was enacted.

Most, if not all, small businesses will be subject to the new rules (other than proprietorships and general partnerships), including entities that are formed as part of what most practitioners consider regular, everyday estate planning. While there is an exemption for very large entities, there is no exemption for very small entities, even if there is no gross income.

Reporting companies must file one initial report. Additional reports will only be made for updates or corrections to filed information within 30 days of the change. Reporting companies must report certain information about their beneficial owners. The term “beneficial owner” means any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25% of the ownership interests of such reporting company.

A “beneficial owner” does not include a minor child, as defined in the State in which the entity is formed, provided; however, the information of the parent or guardian of the minor child must still be reported; an individual acting as a nominee, intermediary, custodian, or agent on behalf of another individual; an individual acting solely as an employee of a reporting company and whose control over or economic benefits from such entity is derived solely from the employment status of the person; an individual whose only interest in a reporting company is through a right of inheritance; or a creditor of a reporting company, unless the creditor meets the preceding definition of “beneficial owner.”

Reporting companies created or registered on or after January 1, 2024 will also be required to report information about their company applicants. Reporting companies created before January 1, 2024 are not required to report information concerning its company applicants. The term “company applicant” means the individual who directly files the document that creates the domestic reporting company, the individual who directly files the document that first registers the foreign reporting company, or whether for a domestic or a foreign reporting company, the individual who is primarily responsible for directing or controlling such filing if more than one individual is involved in the filing of the document. For example, a reporting company may have more than one company applicant if one person prepared the filing document and another person submitted the actual paperwork.

Report Requirements for Reporting Companies

Initial Reports

Already existing reporting companies must file an initial report before January 1, 2025, but no earlier than January 1, 2024.

Any new reporting company created on or after January 1, 2024, and before January 1, 2025, must file an initial report within 90 calendar days of the earlier of the date on which it receives actual notice that its creation has become effective or the date on which a secretary of state or similar office first provides public notice that the reporting company has been created. Any new reporting company created on or after January 1, 2025, must file an initial report within 30 calendar days of the earlier of the date on which it receives actual notice that its creation has become effective or the date on which a secretary of state or similar office first provides public notice that the reporting company has been created.

Updated and Corrected Reports

Following an initial report, reporting companies must submit updated reports to reflect any changes that have been made to reported information within 30 calendar days after the date on which such change occurs.

A reporting company must file a corrected report, if any filed report was inaccurate, within 30 calendar days after the reporting company becomes aware or has reason to know of the inaccuracy. A corrected report filed within this 30-day period is sufficient if it is filed within 90 calendar days after the date on which the inaccurate report was filed.

Content of Reports

Information Required About Reporting Companies:

1. The full name, and any trade name, of the reporting company.
2. The address of the principal place of business or the street address of the primary location in the U.S. where the reporting company conducts business.
3. The jurisdiction of formation of the reporting company.
4. The jurisdiction where a foreign company first registered.
5. The IRS Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN)) of the reporting company.

Information Required About Beneficial Owners and Company Applicants:

1. Full legal name.
2. Date of birth.
3. Current address of either the business, in the case of a company applicant who forms or registers an entity, or the individual’s residential street address in any other case.
4. A unique identifying number and the issuing jurisdiction.
5. An image of the document from which the unique identifying number was obtained.

Violations

It is unlawful for any person to willfully provide false beneficial ownership information, or to willfully fail to report complete or update beneficial ownership information to FinCEN. Penalties for providing false information and failing to report include fines and potential imprisonment, including civil penalties up to $500 for each day that the violation continues. Violators may also be fined criminally up to $10,000 and imprisoned for up to two years. It is also unlawful for any person to knowingly disclose or use beneficial ownership information submitted to FinCEN without authorization. Penalties for knowingly disclosing information include fines and potential imprisonment, including civil penalties up to $500 for each day that the violation continues. Violators may also be fined criminally up to $250,000 and imprisoned for up to five years.