A Major New Law Affecting Many Perelson Weiner Clients

December 2023

 
 

After several postponements, the federal Corporate Transparency Act (CTA) becomes effective in 2024 and applies to many Perelson Weiner clients. The CTA's extensive rules are intended to curtail money laundering, terrorism financing and other illegal activity. Over 30 million small business LLCs, partnerships, S corporations and other entities registered with a state Secretary of State or equivalent will be required to report specific identification information about the entities themselves and the individuals who directly and indirectly control them. The disclosure about individuals is called "Beneficial Owner Information" (BOI). The CTA is administered by the Treasury Department's Financial Crimes Enforcement Network (FinCEN), which has already issued over 100 pages of CTA compliance regulations, with more to come. The CTA imposes $500/day penalties and potential criminal prosecution for non-compliance.

Most money laundering is done through opaque layers of small LLCs and other shell companies designed to disguise the identities of those actually in control. Accordingly, the CTA is aimed at small rather than larger entities, which are exempt from filing. Entities created on or after January 1, 2024 must file initial BOI reports by April 1, 2024. Entities existing on December 31, 2023, (most of the 30 million) have until January 1, 2025 to file. For new entities, the Secretary of State's formation notice must be issued on or before December 31st to avoid early 2024 filing. While online new entity registration speeds the process, anyone intending to meet the December 31 deadline must act now.

BOI reporting is not annual. After the initial report, only changes to both Entity and Beneficial Owner information, such as address changes, must be reported to FinCEN within thirty days of the change.

The BOI information to be reported for each entity is fairly basic (See Appendix). Only individuals can be Beneficial Owners, even where entities own 100% of a subsidiary. The complexity is in identifying those deemed to be Beneficial Owners. In addition to individuals who own significant equity and other indicators commonly associated with entity ownership, others with significant influence over entity decision-making are Beneficial Owners for CTA purposes.

Most trusts do not have to file with FinCEN, as they are not registered with a Secretary of State. However, if the trust controls one or more entities that are required to report, trustees, plus certain beneficiaries, trust protectors and others could all be Beneficial Owners of those trust-owned entities under the CTA's BOI definitions. The definitions include both objective elements and subjective ones, such as the terms "substantial control" and "important decision-maker". FinCEN guidance has helpful examples, but will not cover all potential beneficial ownership.

Perelson Weiner is available to assist you through this process. Entity owners may file the BOI reports themselves or engage professionals to assist them. We are here to answer your questions. More complex fact patterns may benefit from more complete professional guidance and filing assistance.

With the first filing date only five months away, FinCEN is still finalizing the forms to be filed and the filing procedures. Filing must be done electronically. Based on the FinCEN regulations and other materials, it is likely that 2024 will be a "test year" for entities formed on or after January 1st, to work out problems before the massive filing for more than 30 million entities due by January 1, 2025.

Everyone involved with BOI reporting is waiting for FinCen to issue its specific BOI report filing procedures. When that happens, we will be able to provide more complete information.

For additional information, please contact your PW partner and review the Appendix*, which follows.

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*Appendix – Select CTA Provision Summaries

"Reporting Companies" Required to File BOI Reports with FinCEN

  • Domestic reporting companies

    • Corporations, LLCs and any other entities created by the filing of a document with a secretary of state or any similar office in the United States.

  • Foreign reporting companies

    • Entities (including corporations and LLCs) formed under the law of a foreign country that have registered to do business in the United States by the filing of a document with a secretary of state or any similar office.

Trusts are not "Reporting Companies" themselves in most states, as they do not involve Secretary of State registration. But trusts that own Reporting Companies may have several individuals considered to be Beneficial Owners of those companies.

Reporting Company Exemptions

  • 23 categories of exemptions, including larger US located entities with more than 20 employees and $5 million of gross receipts.

  • See "For More Information" below.

Reporting Companies – Specific Information to Be Reported

  • Full legal name.

  • Any trade name or doing business as (DBA) name.

  • Current principal place of business street address. (No third-party addresses such as CPA or law firms for this purpose).

  • Jurisdiction of formation or registration.

  • Taxpayer ID.

  • For companies formed on or after January 1, 2024, information about the "Company Applicants" (up to two) responsible for the CTA filing.

  • Individuals' names.

  • Birthdates.

  • Address (Can be business address).

  • Unique identifying number from and issuing jurisdiction and uploaded image of one of the following non-expired documents: US passport; State driver's license; ID issued by a state local government or tribe; Foreign passport if the individual does not have any of the previously listed documents.

Beneficial Owner Definition

Any individual who directly or indirectly, either:

  • Owns or controls at least 25 percent of the ownership interests of a reporting company.

  • Exercises "substantial control" over a reporting company, including directing or exercising substantial influence over important decisions of the reporting company, regardless of formal title or whether that person has any ownership interest in the company.

Beneficial Owners – Specific Information to Be Reported

  • Individual's name

  • Birthdate

  • Residential street address. (For this purpose, tax return addresses using Perelson Weiner, post office boxes or attorney addresses cannot be used).

  • Unique identifying number from and issuing jurisdiction of one of the following non-expired documents:

  • US passport.

  • State driver's license.

  • ID issued by a state local government or tribe.

  • Foreign passport if the individual does not have any of the previously listed documents.

  • Uploaded copy of the above document

For More Detailed Information:

Web Links:

  • FinCEN CTA FAQs

    • https://www.fincen.gov/boi-faqs

  • FinCEN CTA Small Entity Compliance Guide

    • https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

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