Congress passed the CTA in December 2020, with the stated intention is to prevent money laundering and financing of terrorism.

The CTA requires disclosure of extensive information on the owners and persons in control of entities to the Financial Crimes Enforcement Network (“FINCEN”) beginning on January 1, 2024. If people are terrorists or cheating on taxes this information will help the government know who is behind it.

The CTA’s reach is very broad and impacts most private businesses. The CTA requires new and existing privately owned businesses with less than 20 full-time employees, and less than $5,000,000 annual gross receipts, to report detailed entity ownership information to FINCEN. This will impact persons who own businesses, LLCs to hold real estate, family limited partnerships, and virtually any entity other than some limited exceptions.

Failure to report will result in stiff monetary and other penalties.

This Compliance Guide from FinCen lists all of the exemptions and explanations: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide_FINAL_Sept_508C.pdf

The exemptions that will most often apply:

  1. Tax Exempt entity
  2. “Large Operating Company”: a. Any entity that:
    • (A) employs more than 20 full time employees in the United States;
    • (B) has an operating presence at a physical office within the United States; and
    • C) filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales, as reported as gross receipts or sales (net of returns and allowances) on the entity’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065, or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under Federal income tax principles. For an entity that is part of an affiliated group of corporations within the meaning of 26 USC 1504 that filed a consolidated return, the applicable amount shall be the amount reported on the consolidated return for such group.
  3. “Inactive Entity”: a. Any entity that:
    • (A) was in existence on or before January 1, 2020,
    • (B) is not engaged in active business,
    • (C) is not owned by a foreign person, whether directly or indirectly, wholly or partially,
    • (D) has not experienced any change in ownership in the preceding twelve-month period,
    • (E) has not 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 12 month period, and
    • (F) does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company, or other similar entity.

There is no way to confirm status if one is unsure whether the entity is exempt.

A Reporting Company includes two types: domestic reporting company and foreign reporting company.

  1. Domestic reporting company:
    • Corporation;
    • Limited liability company; OR
    • other entity created by the filing of a document with a secretary of state or any similar office under the law of a State or Indian Tribe.
  2. Foreign reporting company:
    • Corporation, limited liability company, or other entity;
    • Formed under the law of a foreign country; and
    • Registered to do business in any State or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a State or Indian Tribe.

A trust is not a reporting company because it is not created by filing a document with the State. Even if a trust is required to be registered, unless the registration is required for the trust to be created the registration requirement does not make the trust a reporting company. Many trusts will be beneficial owners, however, and will be involved in the reporting requirements as beneficial owners.

Fiduciaries and other non-beneficiaries who are reported as beneficial owners include:

  1. Individual trustees;
  2. Other individuals with the power to dispose of trust assets, but it is not determined if this includes:
    • investment advisors?
    • Directors of directed trusts?
  3. Beneficiaries reported as beneficial owners:
  4. Sole permissible recipient of income and principal from the trust.
    • Beneficiary who has the power to demand or withdraw substantially all of the trust assets.
    • Grantor of a revocable trust.
    • Grantor of an irrevocable trust if the grantor has the power to withdraw substantially all of the trust assets, but does that mean a substitution power makes the grantor a beneficial owner for reporting purposes?
    • it appears the multiple beneficiaries of sprinkle-type trusts may be excluded from being reported as beneficial owners.

FinCEN has not yet produced a sample Beneficial Owner Information Report, but the report will require information on:

  1. The reporting company.
    • Name, trade name, address, jurisdiction, Tax ID.
  2. Beneficial owners.
    • Legal name, date of birth, address, unique identifying number (non-expired passport, U.S. state driver’s license or other government ID) with an image of the document with the identifying number (e.g., copy of passport), OR
    • FinCEN identifying number.
  3. Company applicants (for entities created or registered after January 1, 2024).
    • Same information as beneficial owners.

The Beneficial owner definition:

  1. Any individual who, directly or indirectly either:
    • Exercises substantial control over the reporting company; or
    • Owns or controls at least 25% of the the reporting company ownership interests of.
  2. The following individuals all have “substantial control:”
    • All “senior officers:” any individual holding the position of or exercising the authority of the president, CEO, CFO,
      COO, general counsel, or any other officer regardless of title who performs a similar function.
    • Any individual who has authority to appoint or remove any senior officer,or a majority of the board of directors, or similar body.
    • Any individual who has “substantial influence” over “important decisions” – as further described in the rules (there are numerous examples).
    • If multiple people have equal control that constitutes substantial control, then each has substantial control for purposes of the rule.
    • Any individual with “any other form of substantial control” (e.g. managers of LLCs).

This is posted on the front page of FinCen’s BOI website: