BAEC Bulletin March/April 2023 | 23
Death & Taxes
Corporate Transparency Act The Corporate Transparency Act (CTA) was enacted as part of the National Defense Authorization Act for Fiscal Year 2021. Beginning January 1, 2024, the CTA will require a “Reporting Company” to provide certain identifying information about its Beneficial Owners and about certain individuals who helped form or register the Company. The purpose of CTA is to help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity. Failure to provide the necessary information within the required timeframe may result in criminal fines and imprisonment. A Reporting Company is any entity formed by a filing with a secretary of state, or, any foreign entity registered to do business in the U.S. by filing with a secretary of state. Reporting Companies include corporations, LLCs, limited partnerships, and limited liability partnerships. Entities which do not file with a secretary of state, such as general partnerships, sole proprietorships or trusts, will not be required to report under CTA. There are exemptions from the definition of Reporting Companies, including banks, broker-dealers, insurance companies and public accounting firms. Tax-exempt entities, such as foundations or public charities are also exempt from CTA reporting. The majority of privately-owned businesses will be Reporting Companies, and that will include many law firms. The Reports are to be filed with the Financial Crimes Enforcement Network (FinCEN), of the U.S. Treasury Department. The information will be searchable by federal agencies involved in national security, intelligence or law enforcement. The registry will not be available to the public. Death and Taxes is a column about trusts and estates. What does CTA have to do with that? Well, trustees and executors, some beneficiaries, and some trust grantors may be required to report. A Reporting Company must disclose information about itself in two categories: Company Applicants and Beneficial Owners. Company Applicants may include the paralegal who filed the organizing documents with the secretary of state, and the lawyer who oversaw that paralegal. There are two types of Beneficial Owners: (1) Those who exercise substantial control over the Reporting Company, that can include fiduciaries, and (2) those who are 25% owners of the Reporting Company, which may include trust beneficiaries, or trust Grantors who have the power to acquire ownership of 25% or more of the Reporting Company. A Trustee who has a power to dispose of trust assets is deemed to own an interest in the Reporting Company. A trust beneficiary is deemed to own an interest in the Reporting Company if he is the sole income and principal beneficiary, or, has the right to withdraw substantially all of the trust assets. A grantor will be considered to own the trust assets if the trust is revocable, or, the grantor may withdraw the trust assets, such as the power to reacquire trust assets and substitute assets of equivalent
PETER J. BREVORKA Partner, Hodgson Russ LLP
JILLIAN E. BREVORKA Partner, Hodgson Russ LLP
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