January 1, 2022, is the day that the Corporate Transparency Act (CTA) became effective.  The CTA requires almost all LLCs, for profit corporations, limited partnerships and other entities created by filing a document with a state to file a report with the Financial Crimes Enforcement Network (“FinCen”) of the U.S. Treasury that discloses information about the entity, its beneficial owners and the person who filed the entity’s formation document with its formation state.

Warning: If you are an owner of a U.S. company you need to read this post to learn if your company must file a report with FinCen and avoid a $500/day non-filing penalty.  

Corporate Transparency Act Compliance

The CTA requires all “reporting companies” to file a report with FinCen that discloses information about the company, its beneficial owners and the person who created the company.  Almost all companies of every type created in the U.S. at ANY TIME are “reporting companies.” See the 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, but most companies are not excluded and are reporting companies.  See the 24 types of entities that are excluded from the definition of a reporting company.

Information that Must Be Disclosed in the FinCen Report

There are three types of information that reporting companies must disclose to FinCen.  The types of information are:

1. Information About the Reporting Company: The reporting company must file a report with FinCen that discloses:

a. its legal name
b. any alternative names through which the Company is engaging in business (d/b/a names or trade names),
c. its business street address,
d. its jurisdiction of formation, and
e. a unique identification number such as an EIN, TIN or FinCEN identifier (a number issued to an entity by FinCen) .

2. Information about Beneficial Owners: A Beneficial Owner is anybody (person, entity, trust etc.) who owns twenty-five percent or more of the reporting company and each individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise exercises substantial control over the reporting company. A trustee of a trust that is the sole owner of an entity or that owns twenty-five percent or more of the entity is a Beneficial Owner.

The reporting company must report the following information about each Beneficial Owner:

a. The full legal name of the Beneficial Owner;
b. The Beneficial Owner’s birth date;
c. The current residential or business street address of the Beneficial Owner;
d. A unique identifying number (i.e., non-expired passport issued by the U.S., non-expired personal identification card, or non-expired driver’s license issued by a state) or FinCEN Identifier issued to the Beneficial Owner; and
e. A picture of the Beneficial Owner’s non-expired driver’s license, passport, id card or nonexpired passport issued by a foreign government from which the unique identifying number was obtained.

A person has substantial control of the reporting company if the person: (1) serves as a senior officer of the reporting company; (2) has authority over the appointment or removal of any senior officer or dominant majority of the board of directors (or similar body) of the reporting company; and (3) directs, determines, or decides or has substantial influence over important matters of the reporting company.

3. Information About the Reporting Company’s Applicant.  The reporting company’s applicant is the individual who filed the document that formed the entity.  Examples of formation documents are Articles of Organization, Articles of Incorporation and a Certificate of Limited Partnership.  Anyone who directs or controls the filing of the formation document by another is also an applicant. If you or somebody in your company formed the reporting company, you or that person is the reporting company’s applicant and his or her information needs to be included in the reporting company’s FinCen report.

The information about the applicant that the reporting company needs to include in its report to FinCen is the same information required of Beneficial Owners.

Penalties for Not Complying with the Corporate Transparency Act

The CTA imposes civil fine up to $500/day and criminal penalties for willfully providing false or fraudulent information in its FinCen report or willfully failing to report complete or updated information to FinCEN.

If the reporting company willfully fails to submit the required information on or before the due date of the report or if the reporting company provides false or fraudulent information the U.S. Treasury may cause the reporting company to be subject to:

(1) a civil penalty of not more than $500 for each day that the violation continues,
(2) a fine of up to $10,000,
(3) imprisonment for up to two years, and/or
(4) both a fine and imprisonment.

If the reporting company submits incorrect information to FinCen, the CTA contains a safe harbor allowing the reporting company to avoid civil and criminal penalties if the reporting company did not knowingly submit inaccurate information with the original report and voluntarily submits a report containing corrected information within 90 days of submitting the original report.

Due Date of the Reporting Company’s CTA’s FinCen Report

If the reporting company was formed after 2021 it must file its CTA report with FinCen not later than fourteen days after the entity was formed. If the reporting company was formed before January 1, 2022, it must file its CTA report with FinCen not later than one year after the date the U.S. Treasury Regulations for the CTA become final. At this time the regulations have not been proposed so nobody knows when the regulations will become final and the CTA report for pre-2022 or post 2021 entities will be due.

The U.S. Treasury has also not proposed or finalized the regulations that describe how entities file the CTA report with FinCen. Therefore, it is not possible at this time to comply with this new entity filing requirement.  To learn when your Company’s CTA report will be due and how to file the report review our Corporate Transparency Act website from time to time. Our site will provide the latest information on the CTA and required report deadlines.

Status of the CTA

This article was published on January 1, 2022, before all the CTA regulations were proposed and there were no effective CTA regulations.  We won’t know how to file a FinCen report until the regulations become final.  To keep up to date with CTA developments you should subscribe to our CTA newsletter.