A regulatory issue that has received robust media attention is the January 1, 2024, effective date of the federal Corporate Transparency Act (CTA) which impacts many companies across the nation and beyond.  New York State has also adopted its own version of the CTA for Limited Liability Companies (LLCs), and guidance about both statutes appears below.

The Federal CTA.  The CTA is a federal statute designed to enhance enforcement of federal laws, including the Internal Revenue Code, against smaller corporations, Limited Liability Companies (LLCs), and other business entities  that are employed as shields for the nefarious activities of their “beneficial owners.”  The CTA was passed in 2021, but its effective date was delayed because of the COVID-19 pandemic.

Effective on January 1, 2024, for new corporations and LLCs and by December 31, 2024 for those already in existence, these companies will be required to report their beneficial ownership to the Financial Crimes Enforcement Network (“FinCen”), a bureau of the Treasury Department, unless they satisfy one of the 23 exemptions.  Note that exempt companies need not file with FinCen.

The most pertinent of the 23 exemptions is for “Large Operating Companies” if a company meets each of the following three criteria:

  1. Number of Full-Time Employees (the “Employee Test”). A large operating company must employ “more than 20 full-time employees in the United States.” In general, an employee is considered full-time if such individual provides at least 30 hours per week or 130 hours per calendar month of services to the entity. Notably, employee headcounts must be determined on an entity-by-entity basis. There is no ability to consolidate employee headcounts across multiple affiliated entities, even in the case of sister entities, members of a consolidated group or where an entity is wholly owned.
  2. Operating Presence in the U.S. (the “Physical Presence Test”). A large operating company must have an “operating presence at a physical office within the United States.” To satisfy this criterion, the entity must regularly conduct its business at a physical location in the United States that the entity owns or leases and that is physically distinct from the place of business of any other unaffiliated entity.  This requirement could presumably be addressed through a written sublease where companies share space.
  3. Tax Returns demonstrating more than $5,000,000 in gross receipts or sales (the “Gross Income Test”). A large operating company must have filed a Federal income tax or information return in the United States for the previous tax year which reports more than $5,000,000 in gross receipts or sales (net of returns and allowances) on the company’s IRS Form 1120, consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065 or other applicable IRS form, excluding gross receipts or sales from sources outside the United States, as determined under U.S. Federal income tax principles. Note that a consolidated group of entities that files a single consolidated tax return may aggregate its gross income for purposes of meeting the Gross Income Test.

Exemption Categories.  The full list of CTA exemptions is as follows:

  1. Large operating company
  2. Securities reporting issuers
  3. Banks
  4. Credit unions
  5. Depository institution holding companies
  6. Money services businesses
  7. Brokers or dealers in securities
  8. Securities exchange or clearing agencies
  9. Other Exchange Act registered entities
  10. Investment companies and investment advisers
  11. Venture capital fund advisers
  12. Insurance companies
  13. State-licensed insurance producers
  14. Commodity Exchange Act registered entities
  15. Accounting firms
  16. Public Utilities
  17. Financial market utilities
  18. Pooled investment vehicles
  19. Tax-exempt entities
  20. Entities assisting a tax-exempt entity
  21. Subsidiary of certain exempt entities
  22. Inactive entities
  23. Governmental entities

New York’s LLCTA.  New York also passed its own version, the LLC Transparency Act (S.995B/A.3484) which Gov. Kathy Hochul signed on December 23, 2023 with enabling legislation enacted on March 1, 2024.  The Governor’s announcement states that the LLCTA “creates an LLC beneficial ownership database that can be accessed by federal, state, and local government law enforcement across New York State. This legislation gives these entities the tools to tackle criminal activity which, until now, has occurred behind a curtain of concealment. Individuals who set up, or already have ownership of LLCs and meet the requirements for disclosure, will be required to identify the names of the beneficial owner(s) in the filing.” 

The statute takes effect on January 1, 2026.  Entities formed before the effective date have until January 1, 2027, to register. 

Contracts with the federal CTA.  New York’s statute is modeled after the federal CTA and takes its definitions and exemptions from the CTA.  However, the LLCTA contrasts with the CTA in two important ways:

24. The LLCTA only applies to LLCs created under New York law or which are authorized to do business in New York.  In contract to the federal CTA, the LLCTA requires beneficial owners that claim exemption from the LLCTA to file and attest to the claimed exemption.

25. The CTA only requires updated filings when reported facts change.  The LLCTA, however, requires the filing of an annual statement along with changed facts.

Details about reporting methods, including a secure, non-public online database, are expected to be announced before the effective date of

OGC Solutions® Can Handle Your CTA and LLCTA Compliance!

The OGC Solutions® team is ready to help you with compliance.  To get started, please schedule a brief consultation by clicking here.  Also, please review the CTA Reporting Form (found here) for the data that would be reported for each company.  We will be happy to help you understand the requirements and determine whether an exemption applies to your company..

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