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 rule adopted by FinCEN 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 the Financial Crimes Enforcement Network (“FinCen”) of the U.S. Treasury or be subject to a $500/day non-filing penalty.  Companies that must file a FinCen CTA report are called reporting companies.  The report must disclose information about the entities’ beneficial owners.  If the reporting company is formed after the effective date of the rule, the reporting company’s FinCEN report must also contain the required information for 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, its beneficial owners may be fined up to $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 January 1, 2025, to file their initial FinCEN report.  Reporting companies created or registered after January 1, 2024, have 30 days after receiving notice of their creation or registration to file their initial FinCEN report.

Reporting companies have 30 days to report changes to their information in their previously filed reports 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. 

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 the effective date of the rule):

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 actually 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 all beneficial owners. If the beneficial owner is an entity then it 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 message 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 on or after January 1, 2024, 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 name of the people who filed Articles of Organization or Articles of Incorporation for its customers?  On April 1, 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.

We work with a person designated by the reporting company as our liaison (the “Contact”).  We provide the following services.

  • We help the Contact determine the reporting company’s beneficial owners.
  • We send each beneficial owner an email message that has a link to a pdf fillable form into which the beneficial owner enters his/her/its CTA information or FinCEN identifier to be disclosed in the FinCEN report.  When the beneficial owner submits the beneficial owner information form the data is automatically imported into our database.
  • The reporting company has the option to require beneficial owners to sign the information pdf without notarization or sign and have their signature notarized.  We recommend that the reporting company require beneficial owners to sign the information pdf and have their signature notarized because the beneficial owner cannot later claim somebody other than the beneficial owner submitted incorrect information that was input into the reporting company’s filed FinCEN report.
  • If any beneficial owner has a FinCEN identifier we send the Contact each beneficial owner’s FinCEN identifier that he/she/it submitted to us.
  • We send the Contact a link to a pdf fillable form into which the Contact enters the applicant’s information.  When the Contact submits the applicant information form the data is automatically imported into our database.
  • We prepare a first draft of the FinCEN report with the applicant’s information and the information obtained from each beneficial owner.
  • We send the Contact the first draft of the proposed FinCEN report and ask the Contact to approve the proposed report or tell us what changes we need to make to the proposed report.
  • If changes to the proposed report are needed, we prepare a revised FinCEN report and send it to the Contact for approval.
  • When the Contact has approved the proposed FinCEN report we file the report with FinCEN.
  • We send the Contact a copy of the filed FinCEN report.