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The CORPORATE TRANSPARENCY ACT (CTA) of 2021 — What’s it all about? 

December 22, 2023

As some receiving this communication may have already become aware, there are newly established reporting requirements mandated by the U.S. Congress under the CTA and its accompanying regulations. It will apply to certain entities our firm represents, ones registered with a Secretary of State (or the equivalent), such as LLCs, corporations, and partnerships and will only include trusts, when a trust controls any entity required to report.

The reporting requirement rules are extensive and are intended to prevent the concealment of assets and reduce money laundering, terrorism, and other illegal activities conducted through shell companies, or other similar structures. The CTA requires Beneficial Ownership Information (BOI) reporting by certain entities, ones classified under the CTA as reporting companies.

There are estimated to be over 30 million such reporting companies that are now required to report to the U.S. Treasury Department’s Financial Crimes Reporting Network (FinCEN) identification details regarding the reporting companies and the individuals who directly and indirectly are in control of them. This specific information will be reported electronically via a secure filing platform on FinCEN’s website.

This is a serious reporting requirement for those who are affected. The CTA authorizes the imposition of significant financial penalties, as well as potential criminal prosecution for failure to comply.

These new reporting requirements are applicable as of January 1, 2024, for entities first formed in 2024. Entities existing prior to January 1, 2024, have until January 1, 2025, to comply, so for most of you there is time to digest any concerns this new law brings about.

An initial report is due within 90 days of receiving actual or public notice (the earlier of the two) of the company’s creation or registration and is effective for entities formed in 2024, but the deadline is shortened to 30 days for a reporting company created or registered after January 1, 2025. Furthermore, all reporting companies are required to update their initial reporting within 30 days for any covered changes, such as a change of address of the entity or the controlling owners.

FinCEN has posted Frequently Asked Questions (FAQs) on its website, which provides greater clarification and should be used as a guide. One FAQ response (issued November 16, 2023) states the following. “FinCEN expects that many, if not most, reporting companies will be able to submit their beneficial ownership information to FinCEN on their own using the guidance FinCEN has issued. Reporting companies that need help meeting their reporting obligations can consult with professional service providers such as lawyers or accountants.” 

While the foregoing states reporting companies can meet these obligations without professional assistance, we do not advise it, especially while these reporting requirements are new and still evolving. Additionally, despite FinCEN’s foregoing response including “accountants”, there remains great uncertainty among accountants and their professional liability Insurance carriers as to whether aiding a reporting company with CTA compliance may be deemed providing legal services, thus making such an Unauthorized Practice of Law (UPL) for non-attorneys.

The most recent FinCEN FAQ update was less than 10 days ago, and the reporting guidance continues to evolve. As 2024 will be the first reporting year for some, more will be learned throughout the 2024 year and hopefully there will be much needed clarifications regarding the uncertainty about possible UPL and the role of accountants in aiding clients subject to CTA compliance. We are aware many accountants have stated they will NOT provide any services to clients with CTA reporting requirements, while others are taking a wait and see position. Schulman Lobel LLP falls into the latter category; however, we will outline our plans.

For entities formed in 2024, as these will typically be handled by attorneys or entity formation services, we advise those clients forming such affected entities to have their reporting requirements addressed at time of the entity formation by the servicing attorney, or the entity formation service. For entities formed prior to 2024, where the reporting is not required until January 1, 2025, we hope to be able to accept an engagement to assist with their reporting, once the UPL concerns are clarified. As none of our firm engagement letters at present cover such a service. PLEASE be aware we are not obligated to provide any services to existing clients in connection with CTA compliance, whether that be for an initial report, or a report of changes, and Schulman Lobel LLP will only do so, should we offer a separate or revised engagement letter acceptable to you. As we expect continued evolution of the CTA reporting area, we will inform you of such as we deem appropriate.