The CTA Year-End Filing Deadline is Rapidly Approaching: Start Preparing to File Now
October 3, 2024
Smart Summary
- Since January 1, 2024, the “Beneficial Ownership Information Reporting Rule” promulgated under the Corporate Transparency Act has been in effect.
- Virtually all existing and new limited liability companies, corporations, limited partnerships and other entities formed by a filing with a secretary of state (or an Indian tribe), except certain exempt entities, are Reporting Companies required to timely file beneficial ownership reports with FinCEN, the Financial Crimes and Enforcement Network.
- The Reports include identifying information about significant owners, senior officers and others in substantial control of the reporting company.
- Reporting companies formed prior to January 1, 2024 have until December 21, 2024, to file their initial Reports.
- Reporting companies formed on or after January 1, 2024, must file their initial Reports within 90 days of formation (which deadline shortens to 30 days in 2025).
- All reporting companies, regardless of when formed or when their initial Reports are filed, must file updated Reports within 30 days of any changes to the information in their Reports.
- • The responsibility for filing Reports with FinCEN, accurately, completely and timely, lies with management of the reporting company. While we will not be preparing or filing any Reports (other than the initial Reports for the entities we form after January 1, 2024), if you need guidance in understanding your filing responsibilities with respect to the CTA’s January 1, 2025, deadline, please contact us no later than November 1, 2024.
Since January 1, 2024, the Beneficial Ownership Information Reporting Rule promulgated under the Corporate Transparency Act (“CTA”) has required most entities, which are referred to as “reporting companies” and include most domestic and foreign (if registered in the U.S.) limited liability companies, corporations, limited partnerships and other entities formed by a filing with a secretary of state or an Indian tribe, to file a Beneficial Ownership Information Report (“Report”) with the Financial Crimes Enforcement Network (“FinCEN”), which is an agency in the U.S. Department of the Treasury. These Reports contain personally identifying information about the reporting company’s “Beneficial Owners ” (discussed below) and for entities formed on or after January 1, 2024, also about its “Company Applicants,” which are up to two individuals involved in its formation.
Each reporting company formed or registered in the U.S. prior to January 1, 2024, must file its initial Report with FinCEN by January 1, 2025 (unless it qualifies for an exemption). Entities formed since January 1, 2024, have been required to file their initial Reports within 90 days of formation, which filing period will be reduced to 30 days after formation beginning in 2025.
What Should You Do Now?
Determine
If Your Entity is a reporting company
.
Reporting companies
include (with some exceptions discussed below) every domestic corporation,
limited liability company, and other similar entity ever formed by the filing
of a document with a secretary of state or similar office or an Indian tribe,
and every foreign entity registered to do business in the United States.
However, entities that are not formed by filing such a formation document, such
as general partnerships and many types of estate planning trusts, are not
deemed reporting companies.
Determine
if your reporting company qualifies for an exemption from the filing
requirement.
The CTA
exempts 23 categories of entities from its reporting requirements. Many of
these categories relate to types of entities that are already regulated, such
as public companies, banks and credit unions, broker-dealers and investment
advisory firms, insurance companies, and public accounting firms. The most
common exemptions for non-regulated entities are the following:
- Large operating companies : Entities (i) with more than 20 full-time employees in the United States, (ii) that filed a federal income tax or information return for the previous year showing more than $5,000,000 in gross receipts or sales, and (iii) that have a physical office within the United States. This is determined on an entity-by-entity, not on a consolidated, basis.
- Wholly-owned subsidiaries : Entities that are wholly-owned (100% ) by other exempt entities. Note, however, that a holding company of an exempt entity, such as the parent of a large operating company, will not qualify for this exemption, even if it wholly-owns that large operating company.
- Certain tax-exempt entities : IRC 501(c) non-profit organizations, IRC 527(e)(1) political organizations and IRC 4947(a) trusts.
- Inactive entities (if formed before 2020): Entities that (i) were in existence on or before January 1, 2020, (ii) are not engaged in active business, (iii) are not owned by a foreign person, (iv) have not experienced any change in ownership in the prior 12-month period, and (v) do not hold any assets.
- Formally dissolved entities (if dissolved before 2024) : An entity that completed the process of formally and irrevocably dissolving and thus ceased to exist as a legal entity before January 1, 2024. However, an entity that wound up its affairs and ceased conducting business before January 1, 2024, but did not entirely complete the process of formally and irrevocably dissolving and thus continued to exist as a legal entity for any period of time on or after January 1, 2024, is not exempt.
Determine
who are the Beneficial Owners of the reporting company.
Reports filed with
FinCEN must include certain identifying information about the reporting company,
as well as certain personally identifying information about each individual
Beneficial Owner. However, the initial Reports of reporting companies formed
prior to January 1, 2024, do not need to include information about their
Company Applicants.
Despite the name, Beneficial Owners include not only certain owners of a reporting company, but also certain members of its management. Under the CTA, Beneficial Owners are individuals who:
- own or control, directly or indirectly, at least 25% of the ownership interests (which may occur through ownership of equity, voting rights, options, convertible securities or other arrangements);
- are senior officers (such as the President, CEO, CFO, COO and General Counsel); or
- otherwise substantially control, or direct or have substantial influence over important decisions of, the reporting company (such as the manager of a limited liability company).
As a reporting company grows and its ownership and management structures become more complex, the proper identification of Beneficial Owners may become more challenging.
Obtain
the required information and documentation for the reporting company and each
beneficial owner
The initial Reports
must also include certain personally identifying information about each
individual Beneficial Owner, including such individual’s full legal name, birth
date, residential address, and driver’s license or passport identification
number or other identification document issued by a state or local government
or Indian tribe, or a foreign passport for individuals who do not have any of
the foregoing, along with an image of that document. In lieu of filing that
information, an individual who is a beneficial owner can obtain a “FinCEN ID”
on the FinCEN website (although that individual will need to provide the same
personally identifying information to FinCEN), and the reporting company can
simply provide that FinCEN ID in its Report for that beneficial owner. That
FinCEN ID can then be used by that individual if he or she is a beneficial
owner for any other reporting company in the future.
File the initial Report with FinCEN by December 31, 2024!
Who is responsible for complying with the CTA?
The responsibility for filing Reports with FinCEN, accurately, completely and timely, lies with management of the reporting company.
If your company was formed prior to January 1, 2024, you are responsible for filing the CTA Reports by the upcoming year-end deadline. Kegler Brown will not prepare, amend, or file any CTA Reports except for initial filings for entities formed with our assistance after January 1, 2024.
Have any courts ruled on the validity of these CTA filing requirements?
You may have heard about some recent cases challenging the validity of the CTA, including one case where the court ruled this CTA filing requirement was unconstitutional. However, these cases are unlikely to invalidate the CTA, at least on a nationwide basis, before the year-end deadline. While earlier this year a federal court in Alabama ruled that this CTA filing requirement was unconstitutional, that ruling (which has been appealed) was limited to the plaintiffs in that lawsuit and thus does not apply to any other entities.
In addition, while at least a half dozen other lawsuits have been filed around the country challenging the validity of the CTA, none of those lawsuits is expected to result in a court ruling in time to affect the January 1, 2025 filing deadline for reporting companies.
Will the U.S. Congress or state legislatures come to the rescue?
Several legislative proposals to either repeal the CTA or to extend the year-end deadline are currently pending or have been proposed in Congress, as well as in many states, including Ohio. However, none of this legislation appears likely to be adopted in time to affect the year-end filing deadline (if ever), and state legislation is unlikely to overturn the federal CTA requirements. In fact, New York has adopted, California has proposed, and other states are considering their own similar corporate transparency laws.
When should you begin preparing a Report?
The CTA reporting requirements are complex and may require an intensive facts and circumstances analysis that takes time. In addition, it may require information from beneficial owners that may be difficult to collect and take even more time. Accordingly, reporting companies should not wait, but should begin preparing now in order to meet the January 1, 2025 filing deadline .
What if you don’t file by year-end (or ever)?
A willful violation of the CTA -- such as an intentional failure to file or update a report or intentional filing of a report with false or fraudulent information -- can result in fines of up to $10,000 and/or imprisonment of up to two years.
Do you need to file an updated Report if there are any changes to a filed Report?
Yes. The CTA reporting requirements are not “one-and-done” filings. After an initial Report is filed, if there are any changes to the information contained in that Report, such as a new beneficial owner or a change in an existing beneficial owner’s information, an updated Report must be filed within 30 days after the change.
What other resources are available to provide guidance?
Additional information and guidance on the CTA and these filing requirements is available on FinCEN’s website (https://fincen.gov/boi), including its “Small Entity Compliance Guide ” and its “Frequently Asked Questions.”
What is Kegler Brown doing to help its clients?
While this responsibility to comply with the CTA and file the Reports falls on the management of the non-exempt reporting companies, we want you to know that our attorneys are available to provide advice with respect to compliance with the CTA Rule. Please note, however, that, except for the initial Reports for entities formed by Kegler Brown after January 1, 2024, Kegler Brown will not prepare, amend, or file any CTA Reports.
If you need assistance in understanding your responsibilities related to complying with the CTA’s January 1, 2025, deadline, please contact us via email at [email protected] or directly through your Kegler Brown attorney(s) no later than November 1, 2024.
In light of the upcoming year-end deadline for reporting companies formed prior to 2024, we urge you to evaluate and determine your CTA compliance requirements and make any required filings as soon as possible because waiting until later in the year may be too late to navigate your unique issues and requirements. Kegler Brown assumes no responsibility or liability for your compliance with the CTA Rule .