Article Highlights:
- Background of the Corporate Transparency Act Reporting Requirement
- Beneficial Ownership
- Community Property Laws and Beneficial Ownership
- Spouses and Beneficial Ownership Reporting
- Implications for Reporting Companies
- Exceptions and Considerations
- Conclusions
- Filing Deadlines
Background - The Corporate Transparency Act (CTA)
The CTA was passed as a component of a larger initiative to stop money laundering, financing of terrorism, and other financial crimes. The CTA, which was approved by the US Congress in 2021, requires some corporate organizations to provide the Financial Crimes Enforcement Network (FinCEN), a division of the US Department of the Treasury, with information about their beneficial owners. This law seeks to improve corporate transparency by identifying those who own a sizable portion of a company's stock holdings or have considerable control over it.
Full legal names, addresses, and identity numbers of beneficial owners are among the specifics that corporations, limited liability organizations (LLCs), and other like entities must provide under the CTA. In order for law enforcement and regulatory organizations to prevent and look into financial crimes, the reporting requirements are intended to build an extensive database.
The idea of beneficial ownership is important when it comes to corporate transparency and financial legislation. On a number of topics related to beneficial ownership, such as how community property rules affect the identification of beneficial owners, the Financial Crimes Enforcement Network (FinCEN) has issued guidelines. Whether a spouse of a beneficial owner is likewise regarded as a beneficial owner in a community property state is one of the main issues covered in FinCEN's Q&A D.18.
Community Property States and Beneficial Ownership
In several U.S. states, a system of rules known as community property laws governs the ownership of property acquired during a marriage. The majority of property that either spouse acquires during a marriage is regarded as jointly held by both spouses in these states. The determination of beneficial ownership in reporting businesses may be greatly impacted by this legal structure.
FinCEN's advice states that the particular ramifications of applying the relevant state law determine whether a spouse is regarded as a beneficial owner in a community property state. Unless an exemption occurs, both spouses should be reported to FinCEN as beneficial owners if they are judged to hold or control at least 25% of the ownership interests of a reporting firm under community property law.
Implications for Reporting Companies
Complying with FinCEN's reporting obligations requires reporting organizations to have a thorough grasp of the intricacies of community property laws. Businesses need to evaluate the ownership structure and ascertain if community property rules impact couples' ownership interests. Examining the particular state laws and their implications for the company's ownership is part of this study.
The reporting corporation is required to include both spouses in its filings to FinCEN if they are deemed beneficial owners under community property laws. In addition to ensuring openness, this criterion aids in preventing the improper use of company formations for illegal purposes.
Exceptions and Considerations
There are several circumstances in which both spouses may be regarded as beneficial proprietors under community property laws. The advice provided by FinCEN delineates particular situations in which persons may be eligible for exemptions from reporting as beneficial owners. Businesses should carefully examine these exclusions to see if they apply to their circumstances.
Conclusions
State legislation and FinCEN reporting requirements must be well understood in order to determine beneficial ownership in community property states. Because of the implications of community property laws in some jurisdictions, spouses may be deemed beneficial owners, which calls for careful reporting by businesses. When in doubt, adding the spouse as a beneficial owner would be the safe harbor course of action.
The report can be amended on the FinCEN website in cases where it is established that the spouse is a beneficial owner and an initial report has already been submitted to FinCEN.
Filing Deadlines
The Corporate Transparency Act sets clear deadlines for entities to comply with its reporting requirements.
- Entities in existence or registered to do business before January 1, 2024, have until January 1, 2025, to file their initial beneficial ownership information report.
- Entities created or registered during 2024, must file their initial beneficial ownership information report within 90 days of receiving notice of their creation or registration.
- Entities created or registered after 2024, face a more immediate deadline. These new entities must file their initial beneficial ownership information report within 30 days of receiving notice of their creation or registration.
If you have questions or need assistance, please contact our office. There are substantial penalties for not meeting this reporting requirement.
