Guide to the Corporate Transparency Act

This year, on January 1st, the Corporate Transparency Act went into effect. This new law doesn’t just impact large multi-million dollar companies, many small businesses, including medical practices, will also be required to report information to the Financial Crimes Enforcement Network (FinCEN). This blog post aims to help provide a primer on the Corporate Transparency Act for physicians and other healthcare professionals who own their practice. 

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is federal legislation that created a national ownership registry for domestic and foreign reporting companies, though this blog will focus solely on domestic reporting companies. Generally, medical practices designated as corporations or LLCs, or another type of entity that requires filing with your Secretary of State or similar office are responsible for reporting information to FinCEN, as well as any entity affiliated with the healthcare practice. This means that in most cases, sole proprietors and general partnerships will not have to report information to FinCEN. However, providers should always connect with their attorney first to determine whether the CTA applies to their situation. Healthcare professionals should note that information provided to FinCEN is not publicly available. According to FinCEN’s website, information submitted will only be accessible to “. . . Federal, State, local, and Tribal officials, as well as certain foreign officials who submit a request through a U.S. Federal government agency, to obtain beneficial ownership information for authorized activities related to national security, intelligence, and law enforcement.” Furthermore, if the reporting company provides consent, there may be scenarios where a financial institution also receives access to reported information. 

What Type of Information Needs to Be Reported?

The information being reported to FinCEN is about beneficial ownership. This will require information to be reported about the company itself, the beneficial owner(s), and the company applicant (if the reporting company was registered or created on or after January 1, 2024). See below for more information. 

What is a Beneficial Owner? 

A beneficial owner is any individual who owns or controls at least 25% of a company or exercises substantial control over the company. Please contact your attorney to determine if you own or control at least 25% of the medical practice or to determine if you exercise substantial control over the practice as defined by the CTA.

Reporting Requirements For The Company:

• Company Name
• DBA Names
• Physical Address
• Jurisdiction of Formation
• Taxpayer Identification Number 
• The reporting company will also need to indicate if the filing is an initial report, a correction, or an update to a report previously filed

Reporting Requirements For Each Beneficial Owner And Company Applicants:

• Legal Name
• Birthdate
• Residential Address
• Unique Identifying Number (such as a driver’s license or passport number)
  • The state/jurisdiction that issued the identification document must also be reported
  • A picture of the identification document that the identifying number is from is required

For a complete list of acceptable forms of identification, please visit FinCENS’s frequently asked questions. 

What Is A Company Applicant?

A company application is the individual who files the document creating the company, and the person primarily responsible for directing the filing of the relevant document creating the company. 

This individual may be the owner, or an accountant, attorney, paralegal, organizer, etc. 

Exemptions:

Yes, there are some types of entities that are exempt from beneficial ownership information reporting requirements. In fact, there are twenty-three types of entities that are exempted. See FinCEN’s FAQs or FinCEN’s Small Entity Compliance Guide for more information and a table identifying the types of exempted entities. Please note that an affiliated entity may not also be exempted from the reporting requirements. Each entity should be examined by its attorney to determine if an exemption is available.  

Noncompliance:

Both individuals and the medical practice can be held liable for willful violations of the reporting requirements. Willful violations include, but are not limited to: willfully failing to file a beneficial ownership information report, willfully providing false information on the report, or willfully failing to correct or update information on a previously filed report.  Note that the person who files or attempts to file with FinCen can be held liable for willful violations, but so can the person who willfully provided the filer with false information. Individuals can also be held liable if they were the cause of the failure or were a senior officer when the failure occurred. For more information, please see FinCEN’s website and contact your attorney. 

Noncompliance Penalties:

• Civil: Up to $500 for each day that the practice remains non-compliant with reporting requirements
• Criminal: Jail time up to 2 years and up to $10,000 in fines

Timeline: 

• Companies formed prior to Jan. 1, 2024: Must file by January 1, 2025
• Companies formed in 2024: 90 days to file the initial report after actual or public notice of formation
• Companies formed after 2024: 30 days to file after their formation 
• Amendments are made when there is a change to reported information
• 30 calendar days to file after a change to reported information
• No quarterly or annual reporting requirements

Filing Website:

The Beneficial Ownership Information Filing System can be found here. 

Key Takeaway:

Healthcare providers that own or co-own a practice should meet with their attorney to determine what action(s) should be taken to keep their entity in compliance or if an exemption is applicable. 

[Note: The information provided in this article is for educational purposes only and should not be construed as legal or professional advice. Consult with legal counsel and compliance experts for specific guidance related to compliance with the Corporate Transparency Act.]