The Major Federal Reporting Requirement | Cape Law Firm

The Major Federal Reporting Requirement | Cape Law Firm

Corporate Transparency Act Mandates Reporting for Millions of Businesses

On January 1 this year, the Corporate Transparency Act (CTA) went into effect, a federal law that requires companies to file reports with the U.S. Treasury Department identifying the direct and indirect “Beneficial Owners” of the company. Never heard of it? Don’t feel like the Lone Ranger – Congress passed the law in 2021, but it just went into effect at the beginning of this year. It is estimated that the new reporting requirements will affect more than 32 million existing entities, many of whom are still unaware of the new law, or are just now learning about it. Besides existing entities, the CTA is expected to impact roughly 5 million new entities that will be created each year.

What is the Corporate Transparency Act?
The CTA was passed to prevent bad actors from using shell companies for money laundering, terrorist financing, tax fraud, and other corrupt practices. To accomplish this goal, the CTA requires the vast majority of companies formed in the U.S. to register and file reports identifying the beneficial owners of the companies into a national database maintained by the U.S. Treasury’s Federal Crimes Enforcement Network (FinCEN).

Who must register and submit reports?
Most companies will be “Reporting Companies” under the CTA. Basically, any company created in the U.S. by filing a document with the Secretary of State or a tribal office is a Reporting Company. The law includes corporations, limited liability companies, limited partnerships, certain business trusts, and similar entities. Exemptions are available for a limited set of business categories that are already regulated, such as publicly traded companies, utilities, financial institutions, commodity exchanges, 501(c) non-profits, governmental entities, insurance companies, and a handful of others. Two notable exemptions are “Large Operating Companies” and “Inactive Entities.” To qualify for the Large Operating Companies exemption, the company must (i) employ more than 20 full-time employees in the U.S., (ii) have a physical operating presence and office in the U.S., and (iii) have filed a tax return for the previous year demonstrating more than $5 million in gross sales. To qualify for the Inactive Entities exemption, the company must (i) have been created before January 1, 2020, (ii) not engaged in active business, (iii) not be owned by a foreign person, (iv) not have experienced any change in ownership in the preceding 12 months, (v) not have sent or received more than $1,000 in funds, (vi) not hold or own any kind assets anywhere in the world.

What must be reported?
Reporting companies must submit a report including the following information:

  • Full legal name of the company and any trade names or DBAs
  • Complete current address
  • State (or jurisdiction) of formation
  • Taxpayer ID number
  • Identification and information regarding the entity’s Beneficial Owners

A “Beneficial Owner” is any person who, directly or indirectly, owns 25% or more of the business OR who has “substantial control” over the business. Every business will have at least one Beneficial Owner. The information that must be reported for Beneficial Owners includes:

  • Full legal name
  • Date of birth
  • Residential address
  • A photo of an acceptable form of identification (e.g., driver’s license, passport, etc.)

For companies created after January 1, 2024, “Company Applicants” must also be reported – a Company Applicant is the person (or persons) who directly file originating documents with the Secretary of State to create the company.
What are the deadlines for filing?
Deadlines depend on when the company was created:

  • January 1, 2025 – For entities in existence before January 1, 2024.
  • Reporting Companies formed between January 1, 2024, and December 31, 2024, must file within 90 days of their company’s creation or registration.
  • Reporting Companies created on or after January 1, 2025, must file within 30 days of their company’s creation or registration.

Once the initial reports are filed, a company is required to file a new report within 30 days any time the reported information changes.

It would be a huge mistake to ignore the filing requirement because there are substantial civil and criminal penalties for failing to file. Reporting Companies and senior officers who willfully fail to file or update a report are subject to a fine of $500/day for continuing violations, up to $10,000 and/or imprisonment for two years.

The CTA’s wide net is going to impact millions of businesses, including many farm business structures set up for federal farm program payments, tax planning, and estate planning. For those companies with complex structures, the CTA will be a potential minefield for potential failures. The wise businesses will start looking into their CTA obligations now and preparing the required reports. FinCen has launched its online portal for companies to file their reports.

Insights from a Farmer Panel
(Part 1)

I recently attended the 35th annual conference of the Independent Professional Seed Association and one of the sessions featured a panel of farmers. The purpose of the panel was to gain insights into what things might motivate farmers to consider purchasing from independent seed companies. As the panel described their operations and answered questions, I became enthralled by the implications, not just for seed companies, but what it revealed about the state of modern agriculture.
Among the attributes of the panel members were:

  • All were located in the Midwest and primarily produced corn and soybeans.
  • Each worked on a multi-generational farm, ranging from the 3rd to the 7th generation that had taken over the operation built by previous generations.
  • Each farmed more than 5,000 acres, which would generally be considered a large operation.
  • All had various family members involved in ownership and day-to-day management.
  • All were seed growers.

Among the panel’s responses to questions was a really strong desire to see additional traits in seed that would replace the need to perform other common production activities, particularly making input applications. Two suggestions were traits for disease resistance and traits that resulted in less crop residue (e.g., short statute corn). Both of these suggestions were explained in relation to their potential to eliminate or reduce other work, such as making pesticide applications and tillage. In other words, they wanted the seed (and resulting plants) to be more self-sufficient and do more of the work required to maximize the potential of their commodities. There are probably several insights to be gleaned from this, but one that seems compelling is that as farms become larger, typical management practices become more difficult and less effective – there are only so many family members and hours in a day. If a seed can be built to take on some of the work, a large operation becomes easier to manage and it paves the road for growing larger. And it might possibly reduce the need for some specialists (e.g., crop consultants, particularized product reps, etc.). Might growers of the future need to know less about agronomics and concentrate more on scale? Maybe.

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