We are writing to inform you of an upcoming deadline for compliance with the initial reporting requirements of the Corporate Transparency Act (CTA). Determining whether your company must comply with the CTA and gathering all of the information to be reported, may be a time-intensive process. Therefore, we encourage companies to begin preparing for compliance with the CTA.
Introduction to the Corporate Transparency Act (CTA):
The Corporate Transparency Act (CTA) went into effect in the beginning of 2024, introducing new reporting requirements for many entities. This legislation is a critical development, and we urge you to review Potomac Law’s previous client alert for a comprehensive understanding of the CTA and its implications for your business.
Key Provisions and Compliance Steps:
Under the CTA, certain domestic and foreign companies doing business in the United States must disclose personal information about their "senior officers", "beneficial owners," and, in some cases, "Company Applicants" to the Financial Crimes Enforcement Network (FinCEN). Information may be filed at FinCEN’s website. It is imperative for all entities (unless exempt) to comply with the requirements of the Corporate Transparency Act. Compliance with the CTA likely will require the submission of personal identification documents or the submission of a person’s FinCEN Number (see below).
Compliance Deadlines for Non-Exempt Entities:
Entities in existence on January 1, 2024 have until January 1, 2025 to comply*. Companies formed between January 1, 2024 and January 1, 2025 have 90 days after formation to comply, and companies formed after January 1, 2025 will have 30 days to comply. In addition, the CTA mandates that companies update any changes in the reported information within 30 days of the date of the change. The CTA has specific rules and dates regarding compliance for companies that cease to exist, including that non-exempt entities – whether created before or after January 1, 2024 - that ceased to exist in 2024 must comply with the CTA.
*Please note that there is pending legislation that could extend this and other CTA deadlines.
Exemptions:
There are 23 exemptions from the CTA’s reporting requirements, including entities in regulated industries and "large operating companies" meeting specific criteria. It is essential to determine if your entity qualifies for any exemptions.
Immediate Actions for Companies:
Potomac Law advises all of our clients to:
- Review this Client Alert and our prior Client Alert to understand the CTA.
- Assess whether your business is eligible for an exemption from the reporting requirements of the CTA.
- If your business is not exempt, promptly develop a CTA compliance plan for your business to timely report all information by January 1, 2025, including:
- Gathering the required personal information from beneficial owners and senior officers.
- Reporting the appropriate information to FinCEN no later than January 1, 2025.
Determining whether your company is required to report under the CTA and, if so, identifying and gathering personal information on senior officers, beneficial owners, and/or Company Applicants, may be a fact and time intensive process. For these reasons, we recommend that companies begin preparing for CTA compliance now.
FinCEN Identifier Number and Database Security:
The CTA allows for an individual to acquire a FinCEN Identifier Number by submitting personal information directly to FinCEN. If a person has obtained a FinCEN ID number, then a business will only need to report the individual’s FinCEN ID number, and will not need to report that individual’s personal information, to FinCEN. In addition, any changes that an individual makes to their FinCEN ID number record (such as a change in address) would flow through to all of that person’s affiliated entities. Therefore, if a person is a beneficial owner or senior officer of multiple entities, it could be beneficial for such individual to obtain a FinCEN ID number. FinCEN has stated that it is committed to maintaining this data in a secure, nonpublic database. Please visit https://www.fincen.gov/ for further details on obtaining a FinCEN identifier number.
Penalties for Non-Compliance:
Non-compliance with the CTA can result in a $10,000 penalty and/or a prison term of up to 2 years for willfully providing false information or failing to file accurate reports.
Contact Us for Assistance:
For any questions or to discuss how the CTA may specifically impact your business, please feel free to contact us. We also can provide you with a list of third party service providers who can assist you with your CTA filings. We appreciate your attention to this important matter and stand ready to assist you in navigating these new requirements.
For additional information and guidance on the CTA, see FinCEN’s Small Entity Compliance Guide and FinCEN’s Beneficial Ownership Information Frequently Asked Questions, which are updated periodically.
Note: This publication is distributed with the understanding that the author, publisher and distributor of this publication and/or any linked publication are not rendering legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, assume no liability whatsoever in connection with its use. Pursuant to applicable rules of professional conduct, portions of this publication may constitute Attorney Advertising.
