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By Sabrina D. Johnson
November 9, 2023
As outlined in our previous update, the Corporate Transparency Act (“CTA”) requires many businesses (“Reporting Companies”) to provide information regarding the identities of their beneficial owners to the Financial Crimes Enforcement Network (“FinCEN”). FinCEN will begin accepting filings for beneficial ownership reporting starting January 1, 2024 (though, as of the date of this update, the forms and procedures for filing with the FinCEN registry are not yet available). The CTA will also require new Reporting Companies created from January 1, 2024 forward to provide information regarding the identity of the individuals who directly file, and/or direct or control the filing of, the document to create the Reporting Company.
The CTA will disproportionately affect the real estate industry. Any corporation, limited liability company, or other entity created by filing a document with the secretary of state (or similar office) is subject to the new CTA reporting requirements, unless an exemption applies. Most of the companies exempt from reporting are those which are already heavily regulated by federal law—financial institutions, public entities, and large companies with sufficient gross income.
In short, unless one of the below exemptions applies, your entity is considered a “Reporting Company” under the CTA and must comply with the reporting obligations.
Companies Exempt From CTA Reporting Requirements:
- Issuers of securities registered under the Securities Exchange Act, and required to file supplementary and periodic information under the same.
- Governmental entities.
- Banks, as defined under federal law.
- Credit unions, as defined under federal law.
- Bank holding companies and savings and loan holding companies, as defined under federal law.
- Money service business, as defined under federal law.
- Securities brokers and dealers, as defined under federal law.
- Any other entity registered with the Securities and Exchange Commission (“SEC”) under the Securities Exchange Act.
- Investment companies and investment advisers, as defined under federal law, and who are registered with the SEC.
- Venture capital fund advisers, as defined under federal law and which file certain forms with the SEC.
- Insurance companies.
- State-licensed insurance producers with an operating presence at a physical office within the United States.
- Entities registered with the Commodity Exchange Act; and futures commission merchants, introducing brokers, swap dealers, major swap participants, commodity pool operators, commodity trading advisors, and retail foreign exchange dealers registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.
- Public accounting firms registered in accordance with the Sarbanes-Oxley Act.
- Public utilities.
- Financial market utilities.
- Certain tax exempt entities: 501(c) organizations; political organizations under Internal Revenue Code section 527(e)(1); trusts described under Internal Revenue Code section 4947(a), paragraphs (1) and (2).
- Entity assisting a tax-exempt entity.
- To qualify for this exemption, the company must:
- Operate exclusively to provide financial assistance to, or hold governance rights over, the above-described tax exempt entities;
- Is either a United States person, or is beneficially owned or controlled exclusively by one or more United States persons that are United States citizens or lawfully admitted for permanent residence; and Derives at least a majority of its funding or revenue from one or more
- United States persons that are United States citizens or lawfully admitted for permanent residence.
- To qualify for this exemption, the company must:
- Large operating companies.
- To qualify for this exemption, the company must:
- Employ more than 20 full-time employees in the United States;
- Have an operating presence at a physical office within the United States; and
- Have more than $5,000,000 in gross receipts or sales (measured by the previous year’s federal income tax return). This amount excludes gross receipts or sales from sources outside the United States.
- To qualify for this exemption, the company must:
- Subsidiaries of certain exempt entities.
- Any entity whose ownership interests are controlled or wholly owned, directly or indirectly, by one or more of the above-described entities (except for money services business).
- Inactive entities.
- This is a fairly narrow exception. To qualify for this exemption, the company:
- Must have been in existence on or before January 1, 2020;
- Must not be engaged in active business;
- Cannot be owned by a foreign person (directly, indirectly, wholly, or partially);
- Must not have experienced any change in ownership in the preceding twelve-month period;
- Must not have sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve-month period; and
- Must not otherwise hold any kind of assets, including any ownership interest in any corporation, limited liability company, or other similar entity.
- This is a fairly narrow exception. To qualify for this exemption, the company:
As the new year approaches, Hecht Solberg will continue to provide updates and help navigate compliance with the CTA reporting requirements. For assistance with the reporting requirements, or with any questions, please contact Marcia Loeffelholz at mloeffelholz@hechtsolberg.com, Sabrina Johnson at sjohnson@hechtsolberg.com, or Mickey Maher at mmaher@hechtsolberg.com.