The Corporate Transparency Act Will Affect Many Farms

On January 1, 2024, The Corporate Transparency Act (CTA) took effect with the primary purpose of combatting money laundering, illicit financial transactions, and financial terrorism. The CTA established the Financial Crimes Enforcement Network (FinCEN) in the U.S. Department of Treasury to oversee a national registry of information on owners of entities that are exempt from conventional disclosure regulations. The CTA requires many businesses formed or operating in the United States to report information about their “beneficial owners” to FinCEN. This new law will affect many farms and small businesses.

Any entity that is required to be registered with the Ohio Secretary of State will be considered a Reporting Company and subject to the CTA.  Generally, this means LLCs, corporations and limited partnerships, common entities for farms, are all subject to the CTA.  There are some types of businesses that are exempt from the CTA, such as banks and accounting firms, but farms are not exempt.

The CTA primarily targets small businesses. Therefore, an exemption is provided for large operating companies.  Companies that meet the following conditions are exempt from the CTA reporting requirements:

1. employs more than 20 fulltime employees in the United States
2. has an operating presence at a physical office within the United States; and
3. Filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5M in gross receipts or sales.

Every Reporting Company must provide FinCEN with information for each and every beneficial owner of the business.  A beneficial owner is any owner that exercises substantial control or owns at least 25 percent of the business.  The information required for each beneficial owner is as follows:

• Full legal name.
• Date of birth.
• Complete current address.
• Unique identifying number and issuing jurisdiction from one of the following, along with its image:
  • U.S. passport.
  • State driver’s license.
  • Identification document issues by a state, local government or tribe.

Each Reporting Company must submit an initial filing but also must update the filing if there is any change to the required information about the business or beneficial owners.  For example, if a beneficial owner has a change of address or obtains a new driver’s license, the Reporting Company must update the report with FinCEN.  Both the initial report and updates are filed though the FinCEN website portal at www.fincen.gov/boi. 

So, what does this all mean for farm businesses?  The CTA and beneficial owner reporting requirements may seem like an intrusion of privacy. It is, in fact, an intrusion of privacy, but Congress has determined that the intrusion is necessary to protect against money laundering, illicit financial transactions, and financial terrorism. Right or wrong, the CTA is now law and farm businesses must follow it to avoid penalties.

The process of reporting should not be overly difficult using the FinCEN online portal. But the reporting will take time, especially for entities with many owners. While the entity should already have each owner’s name, address, and ownership percentage, collecting an image of each owner’s identification document could be time consuming. All businesses required to report under the CTA should develop a plan to file the initial report, monitor reportable changes, and file updated reports. Attorneys, accountants, lenders, and other professionals working with farms should also help remind their clients of the need for the initial reporting and future, updated reports. The CTA reporting is a significant change in business entity management and it may take the entire business team to ensure compliance.

For more information and a detailed discussion of the CTA, see The Corporate Transparency Act: Reporting Requirements law bulletin available at farmoffice.osu.edu.