[Farm Law (FLW) Editor’s Note: This entry will be coninually updated. This new federal reporting requirement adds a required element of reporting for businesses in the farm and forestry industry organized as limited liability companies and corporations.]

What’s this is about then?

As of January 1, 2024, limited liability companies, corporations, and some business trusts and partnerships are subject to a new reporting requirement under the federal Corporate Transparency Act (CTA), passed in 2020 as part of the federal Anti-Money Laundering Act of 2020 (itself attached to that year’s National Defense Authorization Act [P.L. 116-283]). The CTA was passed out of public concern that – of the 2 million limited liability companies and corporations formed each in year in the states – a sufficient number are used by domestic and foreign actors with malign design or pursuing illicit activity detrimental to U.S. security and commerce.

While there are some business-type exemptions (e.g. such as banking and insurance), the reporting requirement does apply to farm business operations and landholding entities. Such entities are required to submit disclosure of their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Under regulations (31 CFR §1010.380) effective January 1, 2024, and entities formed after that date must submit their information within 90 days.

[Reporting entities should note that the NC Secretary of State has issued a warning of fraudulent attempts to collect information, usually by email or text under the heading “Important Compliance Reporting.” The Department of the Treasury (including the Internal Revenue Service) does not conduct any business by email or text.)

Farms Are Not Exempt

While there are numerous listed exemptions in the final reporting rule, farm production and landowning entities (such as Limited Liability Companies (LLCs) that hold farm production assets or land) are not exempt from this reporting requirement. Non-profit (e.g. 501[c][3]) organizations are exempt [§1010.380 (B)(2)(xix)]. Also exempt are “large operating companies” with 20 or more full time employees and a prior year federal tax filing showing gross sales receipts above $5,000,000 are also exempt. There are numerous other exempted types of businesses (such as insurance companies and brokerage houses) which are not descriptive of farm enterprises.

Though farms and land-holding entities are not exempt from the reporting requirement, some of their “beneficial owners” will be exempt from disclosure. The rules define beneficial owner as “any individual who, directly or indirectly, either exercises substantial control over such reporting company or owns or controls at least 25 percent of the ownership interests of such reporting company.” [§1010.380(B)(2)(d)]. Thus, a member of an LLC with less than a 25% share of total ownership will not be reported. Regarding “substantial control,” the rules appear to capture most individuals directing the affairs of the company, which for an LLC will be the “manager.” (officers are likewise included) [see §1010.380(B)(2)(d)(1)]

Information Required

The BOIR has three [3] general information requirements: entity identification, beneficial ownership identify, and identify of who formed the company.

1. For entity identification, the BOIR requires the following [per §1010.380(b)(1)(i)]:

(A) The full legal name of the reporting company;

(B) Any trade name or ‘‘doing business as’’ name of the reporting company (FLW comment: this likely includes any name used in marketing materials that is different from the unique entity name filed with Secretary of State, but definitely any business name appearing on a recorded Assumed Name Certificate (DBA) recorded with county register of deeds) ;

(C) A complete current address consisting of:

(1) In the case of a reporting company with a principal place of business in the United States, the street address of such principal place of business (FLW note: the NC Secretary of State form lists this information as optional, but this requirement supersedes); and

(2) In all other cases, the street address of the primary location in the United States where the reporting company conducts business;

(D) The State, Tribal, or foreign jurisdiction of formation of the reporting company;

(E) For a foreign reporting company, the State or Tribal jurisdiction where such company first registers; and

(F) The Internal Revenue Service (IRS) Taxpayer Identification Number (TIN) (including an Employer Identification Number (EIN)) of the reporting company, or where a foreign reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction;

2. For entity beneficiary identification, the following disclosure is required [per §1010.380(b)(1)(ii)]:

(A) The full legal name of the individual;

(B) The date of birth of the individual;

(C) A complete current address consisting of:

(1) In the case of a company applicant who forms or registers an entity in the course of such company applicant’s business, the street address of such business; or

(2) In any other case, the individual’s residential street address;

(D) A unique identifying number and the issuing jurisdiction from one of the following documents:

(1) A non-expired passport issued to the individual by the United States government;

(2) A non-expired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual;

(3) A non-expired driver’s license issued to the individual by a State; or

(4) A non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the documents described in paragraph (b)(1)(ii)(D)(1), (b)(1)(ii)(D)(2), or (b)(1)(ii)(D)(3) of this section; and

(E) An image of the document from which the unique identifying number in paragraph (b)(1)(ii)(D) of this section was obtained.

3. For applicants who filed the entity, the above information is also required for disclosure on the BOIR. Note that this requirement applies to the person who originally signed the submission form for limited liability company, a partnership registration, or articles of incorporation. This may or may not be a family member relation to the beneficial owners of the business, and may include attorneys and accountants who filed the original paperwork. A performance of an entity search on the NC Secretary of State website, then a click on “show document filings” for that business should reveal a pdf of the original filing.

Reporting Deadlines

The date from which the reporting deadline (below) is calculated is the date upon which the entity is formed by submission of the organizational forming document with the Secretary of State. For LLCs, this will be the Articles of Organization; for corporations, the Articles of Incorporation. Though the regulations are not clear on exact date the entity becomes active, one should consider the moment of submission to be the starting of the clock. In other words, if an entity was formed on or about January 1 this year, that entity must report its owners to FinCen by close of March. Below is the deadline schedule:

Entities formed before January 1, 2024 have until January 1, 2025 to file their report (§1010.380(a)(iii).

Entities formed after January 1, 2024 must report their beneficial information within 90 days of formation filing.

Entities formed after January 1, 2025, the reporting window decreases to 30 days.

Trusts are not required to report their beneficiaries, unless trust holds interests in an entity required to report. For example, if a grantor/settlor of a trust owns a membership interest in a farm operation or landholding limited liability company, and has transferred that membership to their trust. The trust may be required to report the beneficial owners of the entity. [More on this to come re farm succession planning implications]

Entities are required to file an update upon “any change with respect to required information previously submitted to FinCEN concerning a reporting company or its beneficial owners” within 30 days of such change. [see FR §1010.380(a)(2)]

Here is the FinCen window for submitting the entity beneficial ownership information report (BOIR).

Non-Compliance

The Corporate Transparency Act reads as follows regarding failure of entities to report their information:

‘‘(i) shall be liable to the United States for a civil penalty of not more than $500 for each day that the violation continues or has not been remedied; and ‘‘(ii) may be fined not more than $10,000, imprisoned for not more than 2 years, or both…”

These figures are to be indexed upward slightly per proposed federal rule [see 89 FR 4820]

The route to discovery of a failure to file is not clear, but one logical route would be matching a requested list of all state annual filings with the FinCen database, OR perhaps a cross reference of entities filing their annual LLC and corporate tax returns, and whether these entities’ TINs (EINs) are consistent with FinCen filings.

A question was posed to this initial post about the relationship between entity information disclosed to Farm Service Agency [on Form CCC-9021] and the FinCen database, and whether non-compliance with BOIR will interrupt farm program payments (or alert FinCen to a non-reporting entity). While no link has yet been discerned – and USDA is not mentioned in the CTA as having access – note again that the Internal Revenue Service has access to the FinCen database. [will update as more info discovered, as in any information-sharing between state secretaries on new business filings and FinCen.]

Here is a US Treasury fact sheet on this new reporting requirement.