The Corporate Transparency Act (CTA) establishes uniform beneficial ownership information reporting requirements for certain types of corporations, limited liability companies, and other similar entities created in or registered to do business in the United States.

CC International Tax Services Comments

The CTA is authorizing the Financial Crimes Enforcement Network (FinCEN) to collect information and disclose it to authorized government authorities and financial institutions, subject to effective safeguards and controls. These rules will go into effect January 1, 2024. While this beneficial ownership information reporting is not income tax related and is not reported on an income tax return/form, it is important to be aware of your responsibility to comply with these reporting obligations given the wide applicability of these rules.

Details

The CTA and its implementing regulations will provide essential information to law enforcement, national security agencies, and others to help prevent criminals, terrorists, proliferators, and corrupt oligarchs from hiding illicit money or other property in the United States (U.S.).

Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company. Certain companies, referred to as “reporting companies”, will be required to report their beneficial ownership information to FinCEN.

There are two types of reporting companies:

1. A domestic reporting company is defined as a corporation, a limited liability company, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
2. A foreign reporting company is any entity that is a corporation, limited liability company, or other entity formed under the law of a foreign country and registered to do business in any U.S. state or in any tribal jurisdiction, by the filing of a document with a secretary of state or any similar office under the law of a U.S. state or Indian tribe.

In general, a beneficial owner is any individual (1) who directly or indirectly exercises “substantial control”¹ over the reporting company, or (2) who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.

The CTA exempts certain entities from the beneficial ownership information reporting requirement including large operating companies with at least 20 full-time employees, more than $5,000,000 in gross receipts or sales, and an operating presence at a physical office within the U.S. Many of these exempt entities are already regulated by federal and/or state government, and many already disclose their beneficial ownership information to a governmental authority.

A reporting company will have to report its legal name, any trade names, doing business as (d/b/a), or trading as (t/a) names, the current street address of its principal place of business if that address is in the U.S. (for example, a domestic reporting company’s headquarters), or, for reporting companies whose principal place of business is outside the U.S., the current address from which the company conducts business in the United States (for example, a foreign reporting company’s U.S. headquarters), its jurisdiction of formation or registration, and its Taxpayer Identification Number (TIN). A reporting company will also have to indicate the type of filing it is making (that is, whether it is filing an initial report, a correction of a prior report, or an update to a prior report).

For each individual who is a beneficial owner or a company applicant, a reporting company will have to report the individual’s name, date of birth, and address, a unique identifying number from an acceptable identification document and the name of the state or jurisdiction that issued the identification document.

A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, to file its initial beneficial ownership information report. A reporting company created or registered on or after January 1, 2024, will have 30 days to file its initial beneficial ownership information report. A reporting company created or registered on or after January 1, 2024, will also need to report information about its company applicants (i.e., the individual who directly files the documents that creates, or first registers the reporting company, and the individual that is primarily responsible for directing or controlling the filing of the relevant document).

If you are required to report your company’s beneficial ownership information to FinCEN, you will do so electronically through a secure filing system available via FinCEN’s website. This system is currently being developed and will be available before your report must be filed. We will provide updates as additional guidance is issued.

For more information regarding the content of this tax alert, please refer to the link below.

¹ Whether an individual has “substantial control” over a reporting company depends on the power they may exercise over a reporting company. For example, an individual will have substantial control of a reporting company if they direct, determine, or exercise substantial influence over, important decisions the reporting company makes. In addition, any senior officer is deemed to have substantial control over a reporting company. Other rights or responsibilities may also constitute substantial control. Additional information about the definition of substantial control and who qualifies as exercising substantial control can be found in the Beneficial Ownership Information Reporting Regulations at 31 CFR §1010.380(d)(1).

Citrin Cooperman Advisors LLC will not provide advice or filing assistance with Beneficial Ownership Information Reporting under the Corporate Transparency Act as these are legal services and should be evaluated in consultation with your legal counsel.