The Anderson Advisors Team put their heads together and came up with a list of questions we should answer.

With the upcoming reporting period for the Corporate Transparency Act, you may have questions about whether you need to create and submit a report about your company’s beneficial owners. We’ve created this helpful FAQ article with all the answers to your most pressing questions. Keep reading to learn more about this act and how it impacts your business.

Key Takeaways

  • The CTA aims to eliminate shell companies that enable illicit financial activity through annual reporting information regarding beneficial owners.
  • Some companies are exempt from reporting because they already report similar information to official government or financial entities.
  • Entities that may need to report include limited liability companies, corporations, or similar entities.
  • Companies that existed prior to Jan. 1, 2024, are required to start reporting from that date and have until Jan. 1, 2025, to deliver accurate reports.
  • Noncompliance and fraudulent information carry hefty fines of $500 per day or up to $250,000, which aim to encourage adherence and accountability.

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What Is the CTA?

Jumpstarting a new age of financial regulatory compliance, the CTA is a new regulation that requires entities to report the beneficial owners of an organization to the U.S. Financial Crimes Enforcement Network. It came into effect in 2022, and companies will be required to comply as of Jan. 1, 2024. The CTA marks the biggest increase in required disclosure in the United States in over 20 years. The aim of this act is to combat illicit financial activity occurring under the guise of shell corporations.

Who Is Exempt From the CTA?

There are 23 types of entities that don’t have to report CTA information to FinCEN, as they often already supply this type of information. Knowing if you’re exempt can help you determine whether you need to report. Here’s a list of CTA exemptions:

  • Certain types of securities reporting issuers.
  • U.S. government authorities.
  • Certain types of banks.
  • State or federal credit unions.
  • Bank holding companies.
  • Money services businesses.
  • Securities exchanges or clearing agencies.
  • Certain entities registered with the Securities Exchange Commission.
  • Certain investment companies.
  • Certain venture capital fund advisors.
  • Insurance companies.
  • State-licensed insurance producers.
  • Commodity Exchange Act registered entities.
  • Type of regulated public utilities.
  • Financial market utilities.
  • Certain pooled investment vehicles.
  • Certain tax-exempt entities.
  • Certain entities assisting a tax-exempt entity.

Some of these entities must fulfill certain requirements to be exempt from FinCEN reporting. FinCEN may publish more exempt entities in the future, so it’s important to research the exception list prior to collecting information and generating your report.

Who Is Subject to the CTA?

Now that you know who is exempt from reporting, you may be wondering who is subject to report beneficial owner information come Jan. 1, 2024. Entities that must report include limited liability companies, corporations, or similar entities that are created by filing a document with the Secretary of State or similar office or formed under a foreign country law and registered to do business in the United States.

Trusts may be required to report depending on state laws. Limited partnerships, limited liability partnerships, and limited liability limited partnerships may also fall under the purview of reporting companies. Consulting with a legal professional prior to the reporting date can help you determine whether your company must report.

When Will the CTA Take Effect?

The CTA was passed in 2021 and became effective in 2022. The first round of reporting will start from Jan. 1, 2024. Companies formed before Jan. 1, 2024, have until Jan. 1, 2025, to report their information to remain compliant with the act. Companies formed on or after Jan. 1, 2024, have a maximum of 30 calendar days to file their reports. The 30-day countdown starts once the company receives notice that their registration or creation is effective.

What Do Reporting Companies Need to File?

There is a list of required details that you must report about your company and its beneficial owners. Knowing these requirements can help you collect all the information you need and expedite the creation of your report. Company information you must report includes:

  • The full legal name of the reporting company.
  • A complete list of names the reporting company may do business as or trade as.
  • A complete current physical address in the United States (not a P.O. box or third-party address).
  • Formation jurisdiction.
  • Registration jurisdiction for foreign reporting companies.
  • Taxpayer or employer identifying numbers for companies in the United States.
  • For foreign reporting companies, identifying numbers issued by a foreign entity and foreign jurisdiction information.

Beneficial owner information you must report includes:

  • The beneficial owner or applicant’s full legal name.
  • Their date of birth.
  • Their residential street address.
  • A unique identifying number from a government issuing agency, which can include a non-expired passport, non-expired driver’s license, or non-expired identification document issued by a state, local, or Indian Tribe agency.
  • An image of the unique identifying number.
  • The individual’s photograph.

How Do I Get a FinCEN Identifier?

If you don’t want to put your home address and other personal information on a public record, you can request a FinCEN identifier. You can get an identifier after Jan. 1, 2024, by completing an electronic web form.

Information required on this form includes the beneficial owners or applicant’s full legal name, date of birth, address, unique identifying number and issuing jurisdiction, and an image of the identification document. After submitting the information, the individual immediately receives a unique FinCEN identifier. It’s important to note that an individual or reporting company can only receive one FinCEN identifier.

What if There Is a Mistake in the Report?

If you file the report and notice a mistake,  you have 30 days from the date of filing to file an updated report. After this time, there may be consequences for filing incorrect information. In severe cases, this might result in FinCEN deeming the report false or fraudulent. Knowingly reporting false information carries a penalty of up to $250,000 or five years’ imprisonment.

What Happens if a Company Fails To File a Report?

Companies that fail to report their beneficial owner information by the deadline may face a fine of up to $500 per day. This adds up quickly, as each day the company is not in compliance adds another $500 to the fine. If a company is non-compliant for an entire month, it may face around $15,500 in fines. Taking it up a notch are the criminal penalties, which can result in up to $10,000 in fines, up to two years in prison, or both.

With the upcoming reporting period looming for many companies, knowing all you can about the CTA can help you prepare your report accurately. This can ensure you’re compliant with the act and prevent you or your company from incurring costly fees. Consider getting the help of a financial advisor to determine whether you need to report and navigate the requirements of the act.

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