Law in the Marketplace: Proposed regulation for the CTA

Published: 10-01-2023 8:00 AM

As many readers will know, the Corporate Transparency Act (the “CTA”) is a new federal law that imposes a stringent duty on almost all U.S. business entities and foreign entities doing business in the U.S. to make detailed online reports of critical information to the Financial Crimes Enforcement Network (often referred to as “FinCen”), the agency of the U.S. Treasury Department responsible for CTA matters. Under the CTA, companies and their personnel that fail to make these reports or that do so inaccurately will be subject to major civil and criminal penalties.

The federal regulations under the CTA as currently in effect provide in essence that businesses formed on or after Jan. 1, 2024 (which I’ll refer to here as “new businesses”) must file their FinCen reports within 30 days after the date of their formation.

Last Thursday, Sept. 28, 2023, in a publication for which the title is “Beneficial Ownership Information Reporting Deadline Extension for Reporting Companies Created or Registered in 2024,” FinCen proposed an important amendment to the above 30-day rule. The link for the FinCen proposal is very lengthy, but you can readily obtain a copy of it by using the above title in an internet search.

The FinCen proposal proposes, in effect, that while new businesses will still be required to file what the proposal refers to as “initial” FinCen reports, these reports need not disclose the detailed information about their “Beneficial Owners” and the other required detailed CTA information disclosure until 90 days after their formation. The FinCen proposal states that the basis for the proposal is FinCen’s recognition that many new companies will need more than 30 days to compile the above information and that they may also need additional FinCen information as to how to do so — which, accounting to FinCen, it will provide during these 90 days.

The above FinCen proposal is merely a proposal, and the FinCen requests comments on the details of the proposal before FinCen issues it in final form. Comments are due by Oct. 30, 2023.

My guess is that the final terms of the revised filing rules proposed by FinCen will be essentially identical to those to FinCen’s initial proposal. However, I believe that as stated, the FinCen’s proposal will effectively require most or all affected new companies to make two quite separate FinCen reports:

■The first filing will simply inform FinCen that these companies exist and were formed on the dates stated in their initial FinCen reports.

■The second, will provide the above detailed information.

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I think the proposed duty that new businesses must make two required FinCen reports will be confusing to these businesses and will impose additional administrative burdens on their own personnel and on their professional advisers and will result in additional professional fees. But we’ll see.

In any event, my guess is that the final version of the proposal will appear within just a few weeks.

John Cunningham is a lawyer licensed to practice law in New Hampshire and Massachusetts. He is of counsel to the law firm of McLane Middleton, P.A. Contact him at 856-7172 or lawjmc@comcast.net. His website is llc199a.com. For access to all of his Law in the Marketplace columns, visit concordmonitor.com.

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