Corporate Transparency Act, 31 U.S.C. Section 5336

Beginning January 1, 2022, a new federal law called the Corporate Transparency Act (CTA) requires every “reporting company” (almost all LLCs, corporations and similar entities are reporting companies) to file a report with the U.S. Financial Crimes Enforcement Network (FinCen) shortly after the reporting company is created. Reporting companies formed before January 1, 2022, must file the required report with FinCen within two years of the effective date of the U.S. Treasury’s CTA regulations.

According to the U.S. Small Business Administration as of October 2020 there are 31.7 million small businesses in the U.S. of which 81 percent, or 25.7 million, have no employees and 19 percent, or 6 million, have paid employees.  The U.S. Small Business Administration says that 1,000,000 new companies were formed in 2017 in the U.S.  The CTA affects multi-millions of companies and their owners.

What You Need to Know about the CTA

  • The person who forms a reporting company is the reporting company’s “applicant.
  • If any information filed in a FinCen report changes the  reporting company must report the change to FinCen not later than 1 year after the date of the change.
  • A person who (i) willfully provides, or attempts to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document; or (ii) willfully fails to report, complete or update beneficial ownership information may be fined up to $500 for each day that the violation continues or has not been remedied and may be fined up to $10,000, imprisoned for two years, or bothNOTE:  These penalties are the reason ALL REPORTING COMPANIES AND APPLICANTS MUST TIMELY FILE ACCURATE REPORTS WITH FINCEN.  See the penalty provisions of the CTA.
  • More than 90% of U.S. companies (including your companies) are reporting companies that must file with FinCen. A reporting company is a corporation, limited liability company and a similar entity formed by filing a document with a secretary of state’s office — or equivalent or an Indian Tribe or a foreign entity registered to do business in the United States. See definition of a reporting company.
  • An entity is not a reporting company if it: (1) employs more than 20 employees on a full-time basis in the United States, filed a prior year U.S. federal income tax return that reported more than $5,000,000 in gross receipts or sales, including the receipts or sales of other entities owned by the entity and other entities through which the entity operates and has an operating presence at a physical office within the United States, (2) is a bank or credit union, (3) is an insurance company, or (4) is a public utility.  There are many other types of entities that are excluded from the definition of a reporting company.  See all the exclusions from the definition of a reporting company.
  • Reporting companies must disclose to FinCen the required information about each beneficial owner and applicant.  A beneficial owner is an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity.  See the definition of beneficial owner.
  • The following is the required information about each beneficial owner and applicant that the reporting company must disclose to FinCen: (i) full legal name, (ii) date of birth, (iii) current, as of the date on which the report is delivered to FinCen, residential or business street address; and (iv) the unique identifying number from the beneficial owner’s or applicant’s acceptable identification document or the beneficial owner’s or applicant’s FinCEN identifier number.  See the definition of beneficial owner.
  • An acceptable identification document is one of the following: (A) a nonexpired passport issued by the United States; (B) a nonexpired identification document issued by a State, local government, or Indian Tribe to the individual acting for the purpose of identification of that individual; (C) a nonexpired driver’s license issued by a State; or (D) if the individual does not have a document described in (A), (B), or (C), a nonexpired passport issued by a foreign government.  See the definition of acceptable identification document.

Bottom Line: Comply Now or Pay the $500/Day Fine Then Comply

If you own 25 percent or more of a U.S. company or control a U.S. company your company probably is a reporting company that must report the required information about beneficial owners and the company’s applicant with FinCen or your company could be fined $500 a day and be subject to criminal penalties.

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