The Corporate Transparency Act (CTA) that was enacted by Congress in 2021 to combat money laundering and other financial crimes by requiring disclosure of the beneficial ownership of certain domestic and foreign companies, which reporting requirements went into effect as of January 1, 2024.
Generally speaking, reporting companies file an initial beneficial ownership information report (BOIR) of the company and its beneficial owners and company applicants. After filing of the initial report, updates must be filed within 30 days of a change to any information filed in the BOIR. The BOIR is filed with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), which offers an on-line filing or PDF filing method through its website. A willful violation of the CTA reporting requirements may include criminal or civil penalties of $500 per day and up to $10,000 with up to two years of jail time.
The reporting rules as to who is required to file a BOIR specifically includes entities such as business trusts and statutory trusts. Thus, while trusts often created for estate planning purposes do not fall under the definition of a reporting company, the rules do not provide for a blanket exemption of such trusts. As such, there are various scenarios that may require a trust to file a BOIR.
More specifically, if a trust owns 25% or more of a reporting company or has substantial control over the reporting company, then the individuals who own on control such interest in the reporting company through the trust would be deemed as beneficial owners and subject to the BOIR. This scenario may require the BOIR to include information on the beneficiary (unless they are minor children under the age of 18) as well as that of the trustee and settlor. If a corporate trustee is used, the rule presumably requires the name of the corporate trustee’s employees who are responsible for administering the trust. Additionally, if there are other individuals authorized by the trust with certain powers such as disposing of the trust assets, then they too would be included in the BOIR.
It is clear that the CTA’s BOI reporting requirements may create a compliance challenge for trusts necessitating a careful review of who has the power to dispose of the trust assets, or to vote interests in the reporting entity.
