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The Corporate Transparency Act

February 14, 2022

By Robert J. Waine, Esquire

As part of the National Defense Authorization Act for Fiscal Year 2021, enacted January 1, 2021, Congress passed the Anti-Money Laundering Act of 2020, which includes the Corporate Transparency Act (“CTA”), 31 U.S.C.S. § 5336. The purpose of the CTA is to help fight corruption by requiring “reporting companies” to file beneficial ownership information (“BOI”) with the Financial Crimes Enforcement Network of the Department of Treasury (“FinCEN”). The goal of the reporting requirements is to combat the use of anonymous shell companies or other opaque corporate structures that facilitate the flow and sheltering of illicit money. The information filed with FinCEN is confidential and is only available upon a proper request by a government or law enforcement agency.

The CTA will not go into effect until the Treasury Department issues final regulations for its implementation. On December 8, 2021, FinCEN issued a Notice of Proposed Rulemaking, with the written comment period ending on February 7, 2022. Under the proposed rules a “reporting company” must file a BOI report with FinCEN. There are two categories of individuals that the BOI report must identify: (1) the beneficial owners of the entity; and (2) individuals who have filed an application with the specified governmental authority to form the entity or register it to do business. A beneficial owner can be a person who exercises substantial control over the reporting company or owns or controls at least 25 percent of the ownership interest. The BOI report will include the individual’s name, birthdate, address, and a unique identifying number from an acceptable identification document (and an image of the document).

Under the proposed rules, a domestic reporting company includes any corporation, limited liability company, or any other entity created by the filing of a document with the secretary of state or similar office under the law of a state or Indian tribe. A foreign reporting company is any similar type of entity formed under the laws of a foreign country that is registered to do business in any state of tribal jurisdiction. The CTA and proposed regulations identify 23 categories of entities that are exempt from the reporting requirements.  The exemptions include: (i) companies that issues securities and are regulated by the SEC; (ii) Banks, credit unions and bank holding companies; (iii) insurance companies; (iv) accounting firms subject to Sarbanes-Oxley; (v) public utilities; (vi) certain nonprofits; and (vii) an entity that employs more than 20 full-time employees in the U.S., filed a federal income tax return in the previous year showing $5,000,000 in gross receipts or sales in the aggregate, and has an operating presence at a physical office in the U.S. FinCEN estimates there are currently approximately 25,873,339 reporting companies in the U.S. that are not exempt from the reporting requirement.

Under the proposed rules an existing reporting company will have one year from the effective date of the final regulations to file its initial BOI report. New entities will have to file their initial BOI report when the entity is created. If you would like to learn more about the CTA and the reporting requirements, or other assistance with your company, the attorneys at Rothman Gordon P.C. are ready to assist.  Please contact us online or call (412) 338-1169.

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