Corporate Transparency Act Affects Your Estate Plan

The Corporate Transparency Act, which was passed by the Federal Government recently, may soon affect the way people undertake estate planning in the US. This act, which aims to create a comprehensive database of companies within the country, is a part of the efforts being undertaken globally to combat illegal activities such as money laundering, tax evasion, fraud, and other financial crimes. While such reporting requirements have existed in several other countries, it’s still new in the US. And according to Louisville estate planning lawyers, it’s best to be aware of the new reporting requirements if you want to avoid legal hassles and penalties.

What Is The Corporate Transparency Act?
Enacted on 1st January 2021, the Corporate Transparency Act or CTA intends to prevent criminal activities such as money laundering, terrorist financing, tax fraud and evasion, and so on within the US. The act imposes comprehensive reporting requirements on almost all existing and new entities operating within the country. All corporate entities will need to file extensive reports disclosing information related to their beneficial owners. This will provide greater transparency, helping the federal government detect and prevent illegal activities. As per the act, all such reports need to be filed with the Department of the Treasury’s Financial Crimes Enforcement Network or FinCEN.

Earlier, criminals took advantage of the lack of any reporting requirements to anonymously form entities and use them as a means of engaging in money laundering, fraud, and corruption. The act seeks to prevent this by amending Title 31 of the United States Code and introducing comprehensive reporting requirements for any person engaging in business within the country.

Who Will Be Affected By This Regulation?
The law imposes beneficial ownership information reporting requirements on all “reporting entities”, both domestic and foreign. Domestic reporting entities include corporations, limited liability companies (LLCs), etc., created under state law, while foreign entities include any LLC, corporation, or other entity that is created outside the US but is registered to do business within the country.

However, while the definition of ‘reporting entity’ seems quite broad, the law also exempts some specific entities from the reporting requirements. For example, entities operating within some regulated industries are excluded from this definition. These include banks, insurance companies, public accounting firms, credit unions, registered investment companies, 501(c) non-profit organizations, and so on. Certain inactive entities which haven’t engaged in any significant financial activities and are without assets are also exempt from the beneficial ownership reporting requirements.

In addition, any entity that is physically present within the US and employs over 20 full-time employees, and has over $5 million in gross receipts or sales is also exempt from these requirements.

What Are The Reporting Requirements?
As per the recent law, all reporting entities are required to submit a report with the following information to the FinCEN:
● Information about the reporting entity: Includes details of legal names, trade names (if any), full address, state of formation, and tax identification number.
● Information about each beneficial owner: Including legal name, date of birth, the current address of residence, and a valid document with an identification number (such as a passport, driving license, or a FinCEN identifier).

The law will come into effect from 1st January 2024, and all previously existing entities will have to file the report latest by 1st January 2025. However, all entities formed after 1st January 2024 will only get a period of 30 days to file their initial report.

How Can An Estate Planning Lawyer Help?
If you are a reporting entity and are unsure of the filing process, it’s best to seek help from a reputed estate planning lawyer. These professionals are knowledgeable about all the existing regulations and can help you file the right documents within the deadline. With an experienced lawyer, you can not only get rid of the hassle of filing the report but also avoid incurring any penalties for missing or incorrectly filed documents.


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