In prior blogs, I wrote about the federal Corporate Transparency Act (“CTA”) passed on January 1, 2021. Implementation of certain aspects of the CTA were deferred until the United States Department of Treasury could pass rules that clarify the new law. The regulatory process is progressing. Consider the following…

The Corporate Transparency Act…

The CTA will require most existing and new corporate entities (e.g., corporations, limited liability companies, etc.) to report personal information about company owners and incorporators to the Department of Treasury. The face of the CTA raised many questions as to the precise scope of the law and its implementation. On April 5, 2021, the Financial Crimes Enforcement Network (FinCEN) of the Department of Treasury issued an advance notice of proposed rulemaking (ANPRM). The ANPRM invited public commentary on the CTA and requested input on forty-eight specific questions. After receiving commentary, FinCEN published a Notice of Proposed Rulemaking (NPRM) on December 7, 2021. It addressed some, but not all, of the many questions raised.

The proposed regulations…

The proposed rules in FinCEN’s recent NPRM attempt to clarify three questions surrounding the reporting requirements under the CTA: Who must file; What information they must file; and When they must file. This blog will address the question of who. The questions of what and when will be addressed in future blogs.

Companies. The CTA states that corporations, limited liability companies (LLCs), and other similar entities that are created by filing a document under state law must file required reports. Exactly what constitutes “other similar entities” was a key question raised by many public comments to the ANPRM. Unfortunately, FinCEN’s NPRM did not provide much guidance in this regard. FinCEN merely said: (1) It does not plan to identify any other specific form of entities that will be required to submit reports; (2) It believes limited liability partnerships (LLPs), limited liability limited partnerships (LLLPs), business trusts (aka “statutory trusts”), and most limited partnerships (LPs) will be required to submit reports; and (3) It understands that (depending upon state law) sole proprietorships (SPs), general partnerships (GPs), and some trusts may or may not be created by a filing, but offered little additional insight as to how that will be addressed for reporting purposes. FinCEN has invited further public commentary on the issue.

Exemptions. The CTA exempts twenty-four specific types of entities from the reporting requirement. They consist of companies that are otherwise highly regulated (e.g., public companies, banks, insurance companies, non-profit organizations, etc.). FinCEN made it clear that it would not create any additional specific exemptions. The CTA also provides catch-all exemptions for larger companies and dormant entities. As to the requirements for a large company exemption, FinCEN clarified that a “physical office” in the United States means a “genuine working office” in the United States and that FinCEN will follow IRS guidelines for determining whether an employee is a “full-time” employee.

Conclusion…

The CTA and its regulations will continue to be watched and analyzed in the coming weeks and months. Please stay tuned or reach out to me for more information about how this may impact you and your company.

 

PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.