Corporate Transparency Act Revisited: Reporting Requirements and Exemptions

January 18, 2023

On Sept. 30, 2022, the Financial Crimes Enforcement Network (FinCEN) released a final rule related to the Corporate Transparency Act (CTA). In Part 1 of our refreshed, three-part series of articles on the CTA, we covered FinCEN’s new guidance on the beneficial ownership information (BOI) reporting requirement. Now, Part 2 of our series outlines what the CTA requires companies to report and covers how to determine whether your company is exempt from reporting.

What Must Companies Report?

In its report to FinCEN, a reporting company must disclose its:

  • Full legal name
  • Any trade name
  • Current address
  • The jurisdiction of formation
  • The Internal Revenue Service Taxpayer Identification Number (TIN) (including an Employer Identification Number), or where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction

Additionally, reporting companies must submit the following information on its beneficial owner(s) and company applicant(s):

  • The individual’s full legal name
  • The date of birth
  • Current residential or business street address
  • A unique identifying number from an acceptable identification document (and the image of such document), or the individual’s FinCEN identifier

What Companies Are Exempt?

The CTA will require any entity that meets the definition of a “reporting company” to file reports that identify beneficial owners and company applicants. At first glance, the CTA’s definition of a “reporting company” is rather broad, so understanding the exemptions is going to be crucial to determine whether your company needs to report.

In line with FinCEN’s initial proposal, the final rule lists 23 categories of entities that will be exempt from complying with the CTA’s reporting requirements. These exempt entities will include:

  • Large operating companies that:
    • Have 20 or more full-time U.S. employees;
    • $5 million or more of U.S. revenue; and
    • A physical presence in the U.S.
  • Banks
  • Banking holding companies and savings and loan holding companies
  • Broker-dealers
  • Commodity Exchange Act registered entities
  • Domestic credit unions
  • Domestic governmental authorities
  • Financial market utilities
  • Inactive entities
  • Pooled investment vehicles
  • Public accounting firms
  • Public utilities
  • Registered investment companies and advisers
  • Registered money transmitting businesses
  • Securities Exchange or clearing agents
  • Other Exchange Act registered entities
  • Securities issuers
  • State-regulated insurance companies
  • State-licensed insurance producers
  • Tax exempt entities
  • Entities assisting tax exempt entities
  • Subsidiaries of exempt entities
  • Venture capital fund adviser

The final rule specifies that exempt entities’ direct and indirect wholly owned subsidiaries will also be exempt.

Importantly, the above exemptions predominantly apply to large U.S. companies or U.S. related companies, which means that most small businesses and other related entities that are not otherwise subject to federal or state regulations already imposing BOI reporting obligations will be subject to the CTA.

Although an exempt entity does not need to file a report to claim an exemption, in the event that the entity no longer meets the criteria for exemption, the entity will have 30 days after the date it ceases to be exempt to file a BOI report with FinCEN.

The final rule does allow the Secretary of Treasury the authority to expand the exemptions. To do so, the Secretary of Treasury would need to make a finding requiring that other entities to submit BOI would not serve the public interest and would not be highly useful in furthering the CTA’s objective. However, FinCEN appears reluctant to add to the 23 exemptions.

Coming Next

In Part 3 of our series revisiting the Corporate Transparency Act, we will explore the final rule’s timeframe for reporting and what the timing means for your business.

To dive deeper into reporting requirements, and if you want to further explore all of FinCEN’s exemptions, please contact KJK Corporate & Securities attorneys Alex Jones (AEJ@kjk.com; 216.736.7241) or Samantha Cira (SMC@kjk.com; 216.736.7232).