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The Corporate Transparency Act: New Reporting Requirements for Closely Held Businesses

Limited liability companies, limited partnerships, and other closely held entities, including certain business trusts, must now identify and report all beneficial owners to the Financial Crimes Enforcement Network, a bureau of the U.S. Treasury.

A beneficial owner is any individual who directly or indirectly exercises substantial control over the entity or who owns or controls at least 25% of the ownership interests in the entity.
 
The Corporate Transparency Act, or CTA, came into effect on January 1, 2024. It is designed to combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity. CTA reports are not accessible to the public. The information will be accessible only by specific individuals within the government for law enforcement or supervisory purposes, and to financial institutions to facilitate compliance with customer due diligence requirements. Some states have followed suit and enacted similar laws, including New York State.
 
Entities formed prior to January 1, 2024, must file by January 1, 2025; entities formed in 2024 generally have to file within 90 days of formation; however, those formed in 2025 and beyond will have to file within 30 days. Subsequent changes to any reported information must also be submitted within 30 days. There are two methods of filing available. The first is to complete the PDF version of the Beneficial Ownership Information Report and upload it on the FinCEN website. The second is to complete and submit the form entirely online. The PDF version requires an extra step, but the benefit is that the PDF can be saved and reused if changes are submitted later. The filing system and additional information can be found here: BOI E-FILING
(https://boiefiling.fincen.gov/).
 
It is important to note that on March 1, 2024, in a case brought by the National Small Business Association, the U.S. District Court for the District of Alabama held that the CTA was unconstitutional because it exceeded the limitations placed on Congress’ legislative authority under the Constitution. On March 11, 2024, as expected, FinCEN filed a Notice of Appeal to the Decision. However, on March 15, 2024, a separate lawsuit challenging the CTA was also filed in the Federal District Court in Maine. It is possible that the fate of the CTA ultimately ends up being decided by the U.S. Supreme Court.
 
In the interim, penalties for not filing are steep, so please contact your advisors with any questions or concerns. Given the complexities of the CTA and the potential for civil and criminal penalties, it is important to consult with a legal and/or tax advisor to determine the impact of this new law.
 
Ruth Calaman is a Partner at Evercore Wealth Management and the Chief Compliance Officer and General Counsel of Evercore Wealth Management and Evercore Trust Company. She can be contacted at [email protected].