If you haven’t heard before now, the US Treasury Department, through its Financial Crimes Enforcement Network, is implementing new requirements of the Corporate Transparency Act (“CTA”) beginning January 1, 2024. Is that popping sound the bubbles from your New Years Eve toast? No, it is many corporate heads waking on New Years Day to the fact that anyone with substantial control over a private corporate entity is required to register their personal information with a new Federal database, specifically created to, in the words of the Fed, “protect the United States from bad actors who exploit anonymous shell companies to engage in money laundering, corruption, sanctions and tax evasion, drug trafficking, fraud, and a host of other criminal offenses with impunity, while legitimate businesses suffer from their misdeeds.”
Bad actors may stop reading now, for the rest of you, we provide this brief primer on what must be submitted to the Federal database to prove you aren’t the bad guy. If you are the one in charge (i.e. you own 25% or more of the entity or you exercise substantial control over it) be ready to provide your name, date of birth, physical residential address (current within 30 days no less!), and photographic evidence showing your driver’s license or other government issued identification number, just to get started. In addition, similar details about the entity itself must be provided too. As with any new governmental requirement, there are as many rules and exemptions associated with the reporting requirements as fireworks at midnight. Consider the ones addressed below the equivalent of party-poppers.
Any private entity (that’s any entity filed with a state corporation commission or secretary of state’s office) which doesn’t qualify for an exemption must comply with the reporting requirements. The exemptions cover entities that are highly regulated and already report similar information to the Fed watchdogs (looking at you securities folks, financial institutions, venture capitalists, insurance providers). Other exemptions apply to large operating companies (those with 20+ employees, $5M plus in annual gross receipts, and a physical presence in the US), 501(c) nonprofits (not you, homeowners associations!), government entities, and utilities. If your company doesn’t qualify for one of those, congrats – you’ve got a corporate new year’s resolution for 2024!
If this ball does drop on your entity at midnight, let’s talk compliance deadlines. If your company existed prior to January 1, 2024, you have until year-end 2024 to file (but don’t procrastinate – you know the party planners are already anticipating NYE 2025). If you form a new company in 2024, it must meet the filing requirements of the CTA within 90 days from the date of organization.
Thinking this exercise in paperwork isn’t worth the time or effort? Well, the Fed would disagree, and for willful non-filers or those who file fraudulent information, the Fed can assess a civil penalty of up to $500 for each day that the violation continues or criminal penalties including imprisonment for up to two years and/or a fine of up to $10,000 against the senior officers of the entity. Not the way to kick off your best year ever.
Walsh Colucci knows this new reporting requirement is no joke and will affect many of our clients in the real estate industry. So, start your 2024 off right and don’t wait to get the information you need to either have peace of mind or ensure that your entity files timely. We can help you work through this process. Feel free to reach out to Erin Moore Thiebert, Chuck McWilliams, Susie Truskey, Blake Browning, or Will Gibson to schedule time to discuss your next steps.