Take Action Now to Avoid the CTA’s $500/Day Penalty

Take Action Now to Avoid the CTA's $500/Day Penalty

The Corporate Transparency Act (CTA) became a federal law on January 1, 2022.  The effective date of the CTA law administered by the Financial Crimes Enforcement Network ("FinCEN") of the U.S. Treasury is January 1, 2024.  The CTA requires almost all entities formed in the U.S. and almost all entities formed outside the U.S. that do business in the U.S. to file a report with FinCen or be subject to a $500/day non-filing fine.  Companies that must file a FinCEN CTA report are called reporting companies.

The report must disclose information about each of the entities' beneficial owners.  If the reporting company is formed after 2023 the reporting company's FinCEN report must also contain the required information about the reporting company's applicant.  An applicant is the individual who files the document with a state or Indian Tribe that created the reporting company.

Now is the time for managers and people in charge of reporting companies to prepare for the CTA report their company must file with FinCEN.  Reporting companies that do not file a timely and complete CTA FinCEN report that discloses the company's required information about its beneficial owners may be fined $500/day from the due date of the report until the complete report is filed.

Report Due Dates

Reporting companies created or registered before January 1, 2024, have until December 31, 2024, to file their initial FinCEN report.  Reporting companies created or registered after December 31, 2023, have 90 days after receiving notice of their creation or registration to file their initial FinCEN report.

Reporting companies have 30 days to report changes to information in their previously filed report and must correct inaccurate information in previously filed reports within 30 days of when the reporting company becomes aware or has reason to know of the inaccuracy of information in earlier reports.

As of today FinCEN has not created a report filing system.  To learn when it becomes possible to file a FinCEN report sign up for FinCEN Filer, LLC's, free CTA newsletter.

Make sure somebody in your reporting company is in charge and responsible for collecting the required information from the company's beneficial owners and its applicant.  It's time to start collecting all the information about beneficial owners and applicants.

Recommended CTA Protection Actions

Here's our list of important actions reporting companies should take immediately to satisfy their CTA reporting obligation to collect and report information about the reporting company, its beneficial owners and its applicant (if the reporting company was formed after 2023):

1. Subscribe to a free CTA newsletter to keep up to date on the CTA, its regulations and other important issues related to the CTA.  This newsletter will notify you when the U.S. Treasury publishes proposed and final regulations and how to file a FinCEN report.

2.  Determine if you are involved with a reporting company.  Almost all companies that operate small businesses or own real estate are reporting companies regardless of when the company was created.  If you own multiple companies, each company may be a reporting company that needs to file a FinCEN report.  If you are not involved with any reporting companies then you don't need to read beyond this point or pay any attention to the CTA unless and until you become involved with a reporting company.  If you have friends who may be involved with their own reporting companies do them a favor and send them a link to this website.

3.  Identify all of the beneficial owners of the reporting company and notify them as to the existence of the CTA and the requirement that the reporting company disclose to FinCEN the following required 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 address of the beneficial owner. If the beneficial owner is an entity then the entity must report its business address; 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.

4. The reporting company must collect the required information from all beneficial owners.  The best way to collect the required information is to buy our Corporate Transparency Act Affidavit and have each beneficial owner complete and sign the affidavit in front of a notary and return the signed and notarized affidavit to the reporting company.  This affidavit asks the signer to input the required information and attach a copy of the signer's driver's license, passport or other identification document as an exhibit.  You can use this affidavit for multiple beneficial owners and applicants of multiple reporting companies.

Warning:  The reporting company should not rely on oral statements, unsigned documents, text messages or emails to collect information from beneficial owners.  Nor should it allow anybody other than the beneficial owner to supply the beneficial owner's information.  If the beneficial owner or another person submits incorrect information the reporting company must be able to prove that the incorrect information in the FinCEN report was information given to the reporting company by the beneficial owner.  Our LLC Operating Agreements contain language that requires a beneficial owner who submits incorrect information to indemnify the reporting company for any fines imposed on the reporting company due to bad information submitted by a beneficial owner.  The reasons stated in this paragraph are reasons why you should have beneficial owners submit their information using our Corporate Transparency Act Affidavit that must be signed and notarized.

5.  The reporting company needs to collect and report the following information about the reporting company to FinCEN:

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) .

6.  Reporting companies created or registered to do business after 2023 must also identify the individual (the "applicant") who directly filed the document with the government that created the entity or registered it to do business, as well as the individual (also an "applicant") who was primarily responsible for directing or controlling the filing if more than one individual was involved in the filing of the document.  The reporting company must contact the applicant "and get the applicant's required information. The information about the applicant that the reporting company must disclose in its report to FinCEN is the same as the beneficial owners required information.  We provide the applicant's required information for all companies we form.

Note:  Good luck getting this information if a service such as LegalZoom formed your LLC.  Does LegalZoom even know the names of the people who filed Articles of Organization or Articles of Incorporation for its customers?  On October 11, 2023, I searched the word transparency on LegalZoom's website and did not find anything about the CTA.  If an attorney formed your reporting company hopefully that person is alive and able to give you the applicant's required information.

7. If the reporting company is a limited liability company it should cause the members to become obligated to deliver to the company before the FinCEN filing deadline all of the required information.  This should be done by adding language to the LLC's Operating Agreement that notifies the members of the CTA required information, obligates them to provide the information by a specific date and fines them for failing to deliver all of the required information by the company's deadline.  If you have an LLC, you should purchase our CTA Operating Agreement Amendment in Word format that you can insert into your company's Operating Agreement or have the members sign it as a separate amendment to its Operating Agreement.

8. If the reporting company is a corporation you should try to get all of the beneficial owners to sign a Stockholders' Agreement that obligates them to deliver all of the required information to the corporation before the FinCEN filing deadline.

9.  File the required information with FinCEN.  At this time the U.S. Treasury has not finalized the regulations that provide how reporting companies must file their FinCEN report.  When that information becomes known we will update this website and send subscribers to our free CTA newsletter a notice of how to file their report.

Hire FinCEN Filer, LLC, to Prepare & File a FinCEN Report

The following is a description of the FinCEN report services FinCEN Filer, LLC provides when hired to prepare and file a FinCEN report.

FinCEN Filer works with a person designated by the reporting company as its liaison (the “Contact”).  FinCEN Filer provides the following services.

• FinCEN Filer helps the Contact determine the reporting company’s beneficial owners.

• FinCEN Filer gives the Contact a link to FinCEN Filer's online questionnaire that collects the reporting company's information the the applicant's information (if the entity was formed after 2023).  When the Contact submits the questionnaire FinCEN Filer's system sends an email to the Contact and to FinCEN Filer that has all of the information submitted by the Contact.

• FinCEN Filer gives the Contact access to an online questionnaire the Contact should send to each beneficial owner to collect the beneficial owner's information.  The Contact will copy the text we supply and paste the text in an email the Contact sends to each beneficial owner.  This text explains the CTA and asks the beneficial owner to go to the link in the email and submit the beneficial owner's information into FinCEN Filer's online questionnaire. The questionnaire collects the required information about a beneficial owner.  When the beneficial owner submits the questionnaire FinCEN Filer's system sends an email message that contains the beneficial owner's information to the beneficial owner who submitted the questionnaire, to the Contact and to FinCEN Filer.

• FinCEN Filer will send an email to each beneficial owner that has the beneficial owner's information in a document attached to the email as a pdf file.  The transmittal email asks the beneficial owner to review the document, digitally sign the document and represent that all information in the document is correct.  The reporting company must confirm that the beneficial owner's information is correct because if the information is not correct the reporting company can be fined $500/day.

• If any beneficial owner has a FinCEN identifier we will send an email to each beneficial owner that has the beneficial owner's FinCEN identifier in the document attached to the email as a pdf file.  The transmittal email asks the beneficial owner to review the FinCEN identifier, digitally sign the document and represent that the FinCEN identifier in the document is correct.

• FinCEN Filer will prepare the proposed FinCEN report and send it to the Contact as a document attached to an email as a pdf file.  The email will ask the Contact to review the proposed report and if all the information is correct to digitally sign the document.  The email will also say if any information is incorrect the Contact should reply to the email message and give the correct information.

• If changes to the proposed report are needed, FinCEN Filer will revised the proposed FinCEN report and resend it to the Contact for approval.

• When the Contact approves the proposed FinCEN report FinCEN Filer will file the report with FinCEN.

• FinCEN Filer will send the Contact a copy of the filed FinCEN report.