While the Corporate Transparency Act (CTA) became effective Jan. 1, 2024, the first deadline to report for entities created or registered before Jan. 1, 2024, is fast approaching. For New York owners and boards, complying with the CTA may require them to report information about ownership to the United States government at the beginning of 2025, or earlier for non-exempt entities created or registered on or after Jan. 1, 2024.

Not all buildings and owners are required to report, so understanding who needs to comply is essential. Failure to do so can lead to steep penalties that reflect the serious legal issues the act seeks to address.

Background

The CTA is the U.S. government's attempt to combat illicit activity—including tax fraud, money laundering, and financing for terrorism—by capturing more ownership information for specific entities formed in or accessing the U.S. market (including real estate).

The CTA requires entities that meet certain criteria to file a beneficial ownership Information (BOI) report with the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCen). Most corporations, limited liability companies, and limited partnerships, as well as most cooperative corporations (and perhaps, condominium associations, homeowners' associations, and other community associations) are required to report to FinCen under the CTA.

For most entities created or registered before Jan. 1, 2024 required to file, the filing deadline is Jan. 1, 2025. Those who fail to file by the deadline (or fail to update the information if needed) could be subject to (a) imprisonment up to two years, (b) fines up to $10,00,0 and/or (c) civil penalties of up to $500 per day.

Who Is Considered a Beneficial Owner of an Entity?

According to the CTA, an individual qualifies as a beneficial owner if such individual either directly or indirectly (i) exercises substantial control over the reporting company; or (ii) owns or controls at least 25% of the reporting company's ownership interests.

Determining whether an individual exercises substantial control is often a fact-based analysis. However, determining ownership is, or may be, more clear by looking at the ownership rights in the reporting company, such as shares of equity, stock, voting rights, membership interests, partnership interests, or any other mechanism used to establish ownership.

Reporting

Domestic reporting companies are corporations, limited liability companies, and any other entities created by the filing of a document with a secretary of state or any similar office in the U.S.

Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that have registered to do business in the U.S. by the filing of a document with a secretary of state or any similar office.

However, there are many types of entities that are not considered a reporting company and are exempt from the reporting requirements under the CTA. Such exemptions include, in particular, one for the "large operating company" exemption, which applies to those entities that have more than 20 full-time employees in the United States and reported over $5 million in gross receipts or sales in the previous year on their federal tax returns. Other exemptions apply for certain entities that are currently subject to existing regulations, such as banks, credit unions, insurance companies, and investment companies.

Co-Ops, Condos, and HOAs

The CTA applies to cooperative corporations and may apply to condominiums and homeowner associations, unless they qualify for the "large operating company" or other exemption.

One defining feature of a reporting company under the CTA is that the entity is created by the filing of a document with the Secretary of State or similar office. In New York State: 

1. A cooperative corporation files its certificate of incorporation with the New York Secretary of State (NYDOS), so it satisfies this feature.
2. A condominium is required under the New York State Real Property Law to file its declaration of condominium with the New York Secretary of State.  Although it is not clear that such filing "creates" the condominium, prudence dictates compliance as a reporting company (if otherwise applicable) to avoid the significant penalties unless and until it is clear that condominiums in this situation are exempt.
3. A homeowners' association may be formed by the filing of a certificate of incorporation, and in such a case, this feature is satisfied.  There is no explicit reference in the CTA to an unincorporated association (such as an unincorporated homeowners association). However, the FinCEN Frequently Asked Questions, https://fincen.gov/boi-faqs states in C.10. that "homeowners associations (HOAs) can take different forms.  As with any entity, if an HOA was not created by the filing of a document with a secretary of state or similar office, then it is not a domestic reporting company."

The New York City Department of Housing Preservation and Development has indicated that it expects Mitchell-Lama developments to comply with the CTA. 

Individual senior officers (i.e., the president, vice president, treasurer and secretary) of cooperatives, condominiums and homeowner associations that are reporting companies (for which an exemption does not apply) and those individuals who serve on the board of such an entity who are important decision-makers or otherwise exercise any form of substantial control over the entity, must file a BOI report.

Additionally, as members of the board change after each election or otherwise, the BOI report must be updated within 30 days of the election results being certified.

Deadlines and Further Details

The BOI report is required to include certain information regarding the reporting company, each beneficial owner, and for reporting companies created or registered on or after Jan. 1, 2024, their company applicants (which is (i) the individual who directly files the document that registers the reporting company; and (ii) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing; but not more than two individuals).
 

The following information must be disclosed for the reporting company:

1. Its legal name;
2. Any trade names, "doing business as" (d/b/a), or "trading as" names;
3. The current street address of its principal place of business if that address is in the U.S.. For a reporting company whose principal place of business is outside the U.S., the current address from which the company conducts business in the U.S.;
4. Its jurisdiction of formation or registration; and
5. Its Taxpayer Identification Number (or, if a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of the jurisdiction).

A reporting company will also have to indicate whether it is filing an initial report, or a correction or an update of a prior report.

The following information must be disclosed for each beneficial owner of a reporting company:

1. The individual's name;
2. The individual's date of birth;
3. The individual's residential address; and
4. An identifying number from an acceptable identification document, such as a passport or U.S. driver's license, and the name of the issuing state or jurisdiction of the identification document. (The reporting company will also have to report an image of the identification document used to obtain such an identifying number.)

Those reporting companies created or registered on or after Jan. 1, 2024, will also need to report information pertaining to their company applicants, which information is the same information required to be filed regarding the beneficial owners.  

A company applicant is (i) the individual who directly files the document that registers the reporting company; and (ii) if more than one person is involved in the filing, the individual who is primarily responsible for directing or controlling the filing. There should be no more than two individuals considered company applicants. 

It's important to note that sharing beneficial ownership information with a financial institution does not satisfy the CTA filing requirements. Also, FinCEN can share beneficial ownership information with federal, state, and local officials, as well as certain foreign officials, and, under certain circumstances, financial institutions, but only with the consent of the reporting company.

The deadlines for filing the BOI are as follows:

1. For a reporting company created or registered to do business before Jan. 1, 2024, the deadline to file its initial BOI report is Jan. 1, 2025.
2. For a reporting company created or registered on or after Jan. 1, 2024, and before Jan. 1, 2025, the deadline to file its initial BOI report is 90 calendar days after receiving notice of the company's creation or registration.
3. For a reporting company created or registered on or after Jan. 1, 2025, the deadline to file their initial BOI report is 30 calendar days from actual or public notice that the company's creation or registration is effective.

If there is any change to the reporting information concerning the reporting company or its beneficial owners, the reporting company must file an updated report within 30 days after the date of the change. 

Is the CTA Unconstitutional?

On March 1, 2024, no less than 60 days after the CTA became effective, the U.S. District Court for the Northern District of Alabama ruled that the CTA is unconstitutional in the case of National Small Business United v. Yellen. FinCen released a press release in response which implied that FinCen will appeal the court's decisions and made clear that the decision only applies to the plaintiffs specifically named in the case. Accordingly, it's advisable to comply with the CTA and not rely on this court decision as an excuse to avoid the filing.

The New York Transparency Act

The New York LLC Transparency Act (NYLLCTA) is similar in many ways to the CTA (which served as a model for the NYLLCTA, but there are significant difference including, in particular, that NYLLCTA is only applicable to limited liability companies (LLCs) formed in, or authorized to do business in, New York State.

In addition, although the same exemptions apply as those in the CTA, exempt entities are required to make a filing to support the claim of exemption. Also, New York's version of the CTA takes effect on Jan. 1, 2026. LLCs formed or authorized to do business before Jan. 1, 2026, have one year—until Jan. 1, 2027—to make their initial filings with the New York State Department of State. LLCs formed or qualified on or after Jan. 1, 2026, have 30 days from such formation or qualification to comply. 

Conclusion

The Corporate Transparency Act and New York LLC Transparency Act certainly add significant regulatory requirements and burdens on applicable entities in regard to the collection and reporting of beneficial ownership information.

In view of the possible criminal and civil penalties associated with lack of compliance, and the challenges in complying with these new laws, it is critical that companies review both the CTA and NYLLCTA to determine their reporting obligations, if any, to FinCEN and the New York Department of State.

The CTA, and to a lesser extent, NYLLCTA (which is limited to LLCs), cast a wide net, and unless a reporting company can take advantage of one of the exemptions, they will be required to file the report with FinCen and the New York Department of State. 

Perry L. Mintz and Scott Smiler are partners at Gallet Dreyer & Berkey.