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The Corporate Transparency Act


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The Corporate Transparency Act

  1. 1. parsonsbehle.com The Corporate Transparency Act What You and Your Clients Need to Know About the Upcoming Requirements for Beneficial Ownership Reporting
  2. 2. 2 Legal Disclaimer This webinar is based on available information as of November 17, 2022, but everyone must understand that this webinar is not a substitute for legal advice. This presentation is not intended and will not serve as a substitute for legal counsel on these issues.
  3. 3. 3  Congress enacted the Corporate Transparency Act (“CTA”) on January 1, 2021 as part of the National Defense Authorization Act of 2021. o Overrode veto by President Trump  Final Rule issued on September 30, 2022  Regulations effective January 1, 2024  Reporting starts January 1, 2024 and must be completed by January 1, 2025. Introduction
  4. 4. 4 CTA – Basics  Requires entity level reporting to FinCEN of “personally identifiable information” of “beneficial owners” of all US registered entities (LLC, INC, LLP) .  FinCEN is an arm of Treasury which safeguards the US Financial system from illicit use.
  5. 5. 5 CTA – Why?  Few jurisdictions in the US require disclosure of the individuals who own or control an entity.  US shell companies are being used for financial crimes and the evasion of sanctions.  No uniform reporting requirement.
  6. 6. 6 Wyoming Example
  7. 7. 7 What is a Reporting Company?  Corporation  Limited liability company;  Created by the filing of a document with a secretary of state or any similar office under the law of a State of Indian tribe; or o LP, LLP, LLLP, but not a general partnership or trust (unless registered with the a State).  A foreign entity registered to do business in the US.
  8. 8. 8 Reporting Company – Initial Report  The full legal name of the reporting company o BOYLE, DEVENY & MEYER, P.C.  Any trade name or doing business as names o BDM  A complete current address  The State/Tribal/Foreign jurisdiction of formation  EIN/TIN  Each “beneficial owner”
  9. 9. 9  Full legal name  Date of birth  Complete legal address o Residential address of the individual for residency purposes  A unique identifying number and the issuing jurisdiction from a: o Non-expired US passport o Non-expired driver’s license What Must Be Reported For Each Individual
  10. 10. 10 FinCEN Identifier  Individuals and reporting companies may obtain a FinCEN identifier by submitting the applicable information.  The FinCEN identifier will be the easiest way to streamline reporting of multiple tiered entities and should be routinely collected and maintained.  Allows for beneficial owners to limit disclosure of upstream information.
  11. 11. 11 Large Reporting Company Exemption  Large reporting company: o Employs more than 20 FTEs; o Has an operating presence in the US; and o Federal tax return with more than $5 million gross receipts (1120/1120S/1065—maybe Schedule C?).
  12. 12. 12 Exemptions (already regulated)  Governmental entity  Bank/Credit Union  Investment Company  Securities Exchange Act registered entity  Insurance company  Accounting firm registered under Section 102 of Sarbanes-Oxley Act  Public Utility  Tax-Exempt entity
  13. 13. 13 Exemptions – Subsidiary/Inactive  Entities in existence prior to 2020 that: o Are not owned by a foreign person; o Not engaged in active business; o Has not received funds > $1k; and o Does not own an asset.  Entities that are wholly controlled by certain exempt entities. o I.E. a SMLLC owned by a 501(c)(3)
  14. 14. 14 Who is a Beneficial Owner?  "Beneficial owner" means, with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise:  Exercises substantial control over the entity, or  Owns or controls not less than 25% of the ownership interests of the entity.
  15. 15. 15 Ownership Interest  Equity/stock or similar instruments  Any capital or profits interest o Appears that both are tested independently.  Convertible instruments  Trusts: o Trustee with authority, or beneficiary if: • Is the sole beneficiary; or • has the right to demand distributions or withdraw substantially all of the assets from the trust; or • Grantor/settlor who right to revoke or withdraw assets.
  16. 16. 16  Minor  Custodian  Employee, but only to the extent they are not a “senior officer”  An individual with a future inheritance right  A creditor (unless a beneficial owner) Ownership Interest – Exceptions
  17. 17. 17 Substantial Control  Direct: o Senior officer—president, CFO, general counsel, CEO, COO, and similar o Authority over the appointment or removal of any senior officer or a majority of the board of directors o Directs, determines, or has substantial influence over major decisions— principal assets, reorganization, major expenditures  Indirect: o Board representation o Ownership of majority of voting rights o Contractual arrangements (including through subsidiaries)
  18. 18. 18 Continuous Update Changes must be updated to FinCEN within 30 days. New entities must file within 30 days.
  19. 19. 19 Beneficial ownership disclosure information (“BOD information”) is confidential and cannot be disclosed by (a) a U.S. officer or employee, (b) an officer or employee of any State, local, or Tribal agency, or (c) an officer or employee of any financial institution or regulatory agency receiving the BOD information under the CTA. Retention and Disclosure of BOD Information by FinCEN
  20. 20. 20 FinCEN may disclose BOD information upon receipt of a request made by a financial institution subject to FinCEN’s customer due diligence rule (“CDD”), with the consent of the reporting company, to facilitate compliance of the financial institution with CDD requirements under applicable law. Retention and Disclosure of BOD Information by FinCEN – continued
  21. 21. 21 Creation of a Beneficial Ownership Registry – continued  Although the database is nonpublic, FinCEN is allowed to share information with state and local governments, and most foreign governments, and (with consent of the disclosing entity) financial institutions.
  22. 22. 22  Civil penalties of not more than $500 for each day that violation continues.  Fine of not more than $10,000 or 2 years’ imprisonment, or both. Penalties for Willful Reporting Violations
  23. 23. 23 Safe Harbor for Inaccurate Report  Person not subject to civil or criminal penalty if the person has reason to believe that any report submitted by the person contains inaccurate information and voluntarily and promptly (i.e., not more than 90 days after the date the person submitted the report) submits a report containing corrected information.
  24. 24. 24 Penalties for Unauthorized Disclosure or Use Violations Civil penalties of not more than $500 for each day that violation continues. Fine of not more than $250,000 or 5 years’ imprisonment, or both.
  25. 25. 25  While violating another federal law or as part of a pattern of any illegal activity involving more than $100,000 in a 12 month period, a fine of not more than $500,000 or 10 years’ imprisonment, or both. Penalties for Unauthorized Disclosure or Use Violations – continued
  26. 26. Thank You
  27. 27. 27 For more information, contact:  Ross Keogh 406.317.7241 rkeogh@parsonsbehle.com