Under the new Corporate Transparency Act (codified as 31 U.S.C. §5336) (“CTA”), covered entities must file “Beneficial Owner Information Reports” with the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) within 30 or 90 days after formation or registration (for companies created or first registered after January 1, 2024) or by no later than January 1, 2025 (for companies created or registered prior to January 1, 2024). However, determining whether an entity is “covered” and the extent of reporting can be challenging.
To be a “covered” entity, the entity must have been created through or registered with the Secretary of State or any tribal territory within the United States. 31 U.S.C. §5336(a)(11)(A). This means that entities created outside of a government agency without the need for registration are typically excluded from the filing requirement. While this may vary from state-to-state, in Illinois, the Secretary of State governs corporations, not-for-profit (“NFP”) corporations, LLCs, limited partnerships (“LPs”), and limited liability partnerships (“LLPs”). The Illinois Secretary of State does not register sole proprietorships, general partnerships, or trusts.
The CTA contains a number of exceptions from the regular filing requirement for the following types of entities (see several highlighted below):
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- An issuer of a class of securities registered under section 12 of the Securities Exchange Act of 1934 (15 U.S.C. 78l).
- An issuer that is required to file supplementary and periodic information under section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(d)).
- An entity established under the laws of the U.S. or a State that exercises governmental authority on behalf of the United States, an Indian Tribe, State, or political subdivision.
- A bank as defined in: (i) section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813); (ii) section 2(a) of the Investment Company Act of 1940 (15 U.S.C. §80a-2(a)); or (iii) section 202(a) of the Investment Advisors Act of 1940 (15 U.S.C. 80b-2(a)).
- A federal or state credit union as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752).
- A bank holding company (defined in 12 U.S.C. 1841) or a savings and loan holding company (defined in 12 U.S.C. 1467a(a)).
- A money transmitting business registered with the Secretary of the Treasury under section 5330.
- A broker or dealer (defined in 15 U.S.C. 78c) that is registered under Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o).
- An exchange or clearing agency (defined in 15 U.S.C. 78c) that is registered under section 6 or 17A of the Securities Exchange Act of 1934 (15 U.S.C. 78f, 78q-1).
- Any other entity registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).
- An entity that is an investment company (15 U.S.C. 80a-3) or investment advisor (15 U.S.C. 80b-2) registered with the Securities and Exchange Commission under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or the Investment Advisors Act of 1940 (15 U.S.C. 80b-1 et seq.).
- An investment advisor described in section 203(l) of the Investment Advisors Act of 1940 (15 U.S.C. 80b-3(1)) that has filed Item 10, Schedule A, and Schedule B of Part 1A of Form ADV, or any successor thereto, with the Securities and Exchange Commission.
- An insurance company defined in section 2 of the Investment Company Act of 1940 (15 U.S.C. 80a-2).
- An entity that is an insurance producer that is authorized by a State and subject to supervision by the insurance commissioner or a similar official or agency of a State, and has an operating presence at a physical office within the U.S.
- A registered entity defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a).
- An entity that is a futures commission merchant, introducing broker, swap dealer, major swap participant, commodity pool operator, or commodity trading advisor (as those terms are defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a)).
- An entity that is a retail foreign exchange dealer, as described in section 2(c)(2)(B) of that Act (7 U.S.C. 2(c)(2)(B)) and registered with the Commodity Futures Trading Commission under the Commodity Exchange Act (7 U.S.C. 1 et seq.).
- A public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212).
- A public utility that provides telecommunications services, electrical power, natural gas, or water and sewer services within the United States.
- A financial market utility designated by the Financial Stability Oversight Council under section 804 of the Payment, Clearing, and Settlement Supervision Act of 2010 (12 U.S.C. 5463).
- Any pooled investment vehicle that is operated or advised by a person described in clause (iii), (iv), (vii), (x), or (xi).
- Any organization that is described in section 501(c) of the Internal Revenue Code of 1986 (determined without regard to section 508(a) of such Code) and exempt from tax under section 501(a) of such Code, except that in the case of any such organization that loses an exemption from tax, such organization shall be considered to be continued to be described in this subclause for the 180-day period beginning on the date of the loss of such tax-exempt status.
- Any political organization (as defined in section 527(e)(1) of such Code) that is exempt from tax under section 527(a) of the Internal Revenue Code.
- Any trust described in paragraph (1) or (2) of section 4947(a) of the Internal Revenue Code.
- Any corporation, limited liability company, or other similar entity that operates exclusively to provide financial assistance to, or hold governance rights over, any entity described in clause (xix), is a United States person, is beneficially owned or controlled exclusively by 1 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 1 or more United States persons that are United States citizens or lawfully admitted for permanent residence.
- Large Operating Entities: Any entity that employs more than 20 employees on a full-time basis in the United States, filed in the previous year Federal income tax returns in the United States demonstrating more than $5,000,000 in gross receipts or sales in the aggregate, including the receipts or sales of (a) other entities owned by the entity, and (b) other entities through which the entity operates, and has an operating presence at a physical office within the United States.
- Subsidiary of Certain Exempt Entities: Any corporation, limited liability company, or other similar entity of which the ownership interests are owned or controlled, directly or indirectly, by 1 or more entities described in clause (i), (ii), (iii), (iv), (v), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii) (xix), or (xxi) of Section 5336(a)(11)(B).
- Inactive Entity: Any corporation, limited liability company, or other similar entity in existence for over 1 year, that is not engaged in active business, that is not owned, directly or indirectly, by a foreign person, that has not, in the preceding 12-month period, experienced a change in ownership or sent or received funds in an amount greater than $1,000 (including all funds sent to or received from any source through a financial account or accounts in which the entity, or an affiliate of the entity, maintains an interest); and that does not otherwise hold any kind or type of assets, including an ownership interest in any corporation, limited liability company, or other similar entity.
- Any entity or class of entities that the Secretary of the Treasury, with the written concurrence of the Attorney General and the Secretary of Homeland Security, has, by regulation, determined should be exempt from the requirements of subsection (b) because requiring beneficial ownership information from the entity or class of entities would not serve the public interest, and would not be highly useful in national security, intelligence, and law enforcement agency efforts to detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.
If one of these exemptions applies, the company does not need to file the Beneficial Owner Information Report with FinCEN. However, entities are still required to file despite exemptions if one of the following applies:
- The entity previously reported to FinCEN because it was not exempt, but has recently become an exempt entity and is reporting such change through an “updated report.” In this case, check Box 1 for “Newly exempt entity” to indicate the change in the company’s filing obligations. Aside from the company’s name and taxpayer identification number, no additional information is required for the “updated report.”
- The entity is owned by or through an exempt entity, but is not itself an exempt entity. In this case, the Beneficial Ownership Information Report should check Box 37 “Exempt Entity” to indicate that the ultimate beneficial owner holds its ownership interest in the reporting company exclusively through one or more exempt entities, and list the name of the exempt entity or entities. In this case, the reporting company does not need to list the individual beneficial owner who holds the interest through an exempt entity.
- For an entity which previously qualified for an exemption but no longer qualifies, the company is required to file its initial Beneficial Ownership Information Report within 30 calendar days of the date on which the company stops qualifying for the exemption.
Determining whether an entity is exempt can be a challenging process requiring sophisticated analysis. Any owner who would like assistance with determining a company’s reporting requirements under the CTA can contact the attorneys at Gensburg Calandriello & Kanter, P.C., who are available to assist with all corporate needs.
Sandra Mertens
[email protected]