Understanding the CTA
The purpose of the CTA is to create a database of U.S. companies identifying the individuals in positions of ownership and control. The law is part of an increasing effort to combat money laundering, terrorism, tax evasion, and other financial crimes.
The Financial Crimes Enforcement Network (“FinCEN”), a bureau of the United States Treasury Department but not part of the IRS, will create and maintain the database. Currently, there are no plans to make the database a matter of public record, but it will be available to various agencies. Every “reporting company” will be required to file reports with FinCEN that provide certain information regarding the entity and the “beneficial owners” of the company.
This new law will affect virtually all small family businesses, including LLCs and other entities designed solely to hold real estate and that conduct no active business activities. Even if an entity has only one owner and is ignored for Federal income tax purposes (such as a single-member LLC), that entity still will have to file reports with FinCEN.
The rule goes into effect January 1, 2024. For entities that already exist by that date, initial reports will be due by January 1, 2025.
However, for entities created on or after that date, initial reports must be filed within 30 days from the creation of the entity, and as of now, no extensions are available. Remember, this is an important deadline to form a new business entity.
The government has established stiff civil and criminal penalties for failing to file for both new and existing entities. Hence, this obligation needs to be treated as a high priority from this point forward.
Avoid Potential Liability by Planning Now
Anyone with an interest in a closely held entity, such as an LLC, corporation, or limited partnership, as well as anyone who exerts significant control over any such entity (which might include holding a position as an officer, director, manager, chief financial officer or investment trustee), could potentially be subject to these requirements. If so, then you may be responsible for filing reports with FinCEN.
Given the difficulties of identifying all the entities and persons who will have to report, we suggest that you begin now to assemble a list of every privately held entity you own an interest in or exert some degree of control over. You should also obtain a copy of the certificate filed with the state where the entity was formed.
Be Aware of Your Responsibilities
As noted above, assembling a comprehensive list of entities you may be connected with could be a prudent step to avoid missing any entities, particularly considering the penalties that may be imposed.
Remember that you are responsible for filing the reports, and our office does not assume any responsibility regarding this new requirement. While we may be able to assist in the future, as of today, we do not assume the responsibility and will not unless specifically engaged to do so upon your request and our consent.
We are providing this information to keep you informed about your responsibilities. If you would like a referral to a professional who can assist or if you have questions about related matters, we invite you to contact us to schedule a consultation.