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The Corporate Transparency Act Take Two: Is Your Entity Required to Report or Is It Exempt?

Corporate Transparency Act On January 1, 2024, the Corporate Transparency Act (CTA) began requiring corporations, limited liability companies and otherentities to file reports with the Financial Crimes Enforcement Network (FinCEN) division of the U.S Treasury Department.

The CTA applies to domestic corporations, limited liability companies, and any other entity whose formation requires a filing with a state agency.   The CTA also applies to foreign entities that must make similar filings to conduct business in the U.S.  

For entities formed after January 1, 2024, reports will be due ninety days after the formation of the entity, and filings will be due by December 31, 2024, for entities formed before 2024.

The CTA provides exemptions for some entities. Many of these exemptions only apply to entities that are subject to more extensive regulation by other government agencies.  However, there are two CTA entity exemptions that apply more generally to broad classes of entities: the exemption for large operating companies and the exemption for inactive entities.

Exemptions Applicable to Broad Classes of Entities.

The large operating company exemption is likely to benefit many privately-held companies. To be exempt, an entity must have all of the following attributes:

  • more than 20 full-time employees in the U.S.;
  • an operating presence at a physical office within the U.S.; and
  • it must have reported more than $5 million in gross receipts or sales on its prior year federal income tax return.

The inactive entity exemption applies only to a fairly narrow group of truly inactive entities. To be exempt, an entity must meet all of the following requirements:

  • it must have been in existence on or before January 1, 2020;
  • it must not be engaged in active business;
  • it must not be wholly or partially owned, directly or indirectly, by a non-U.S. person;
  • it must not have experienced a change in ownership in the prior 12-month period;
  • it must not have sent or received any funds in an amount greater than $1,000 in the prior 12-month period; and
  • it must not hold any assets, whether inside or outside the U.S., including an ownership interest in any corporation, LLC, or other similar entity.

Exemptions Applicable to Highly Regulated Entities.

Many of the CTA exemptions apply only to entities that already are regulated by the U.S. Securities and Exchange Commission (SEC) or Commodities Futures Trading Commission (CFTC).  These include exemptions to:

  • Public companies that are issuers of certain securities registered with the SEC or that are required to make certain periodic filings with the SEC.
  • Investment companies, investment advisers, securities brokers or dealers, and Exchange or clearing agencies that have registered with the SEC.
  • Venture capital fund advisers that are subject to the Advisers Act and have made required filings with the SEC.
  • Other entities not described above that are registered with the SEC.
  • Certain entities that are registered with the CFTC.

Additional CTA exemptions may apply to entities that are subject to regulation by other state or federal agencies.  All of the CTA exemptions are highly dependent on details appearing in applicable regulations.  If you have questions about any of the CTA exemptions or compliance with the CTA filing mandates, McMillan Metro Faerber, P.C. can help.  Contact us with any questions about compliance with this new law.

In case you missed it, click here for our previous post on The Corporate Transparency Act.