The Corporate Transparency Act (the “CTA”) went into effect on January 1, 2024, and requires certain corporate entities to file a report concerning beneficial ownership. There are a number of defined exemptions from the reporting requirements, and owners and operators of health care entities should take note as to whether or not the reporting requirements affect them, and if so, what they must do to comply.
Who Must Report?
Unless an exemption applies, any “reporting company,” or any corporation, limited liability company, and any other entity created by the filing of a document with the Secretary of State or any other similar office in the United States, as well as entities formed under the law of a foreign country that have registered to do business in the United States, must file a report. This largely captures hospitals/health care facilities, physician practices, medical spas, ambulatory surgical centers, urgent care clinics, physician and occupational therapy practices, mental health clinics, etc.
The CTA has 23 reporting exemptions, including exemptions for tax-exempt entities, large operating entities (defined as having more than 20 full time employees or having more than $5,000,000 in gross receipts or sales), and wholly-owned subsidiaries of those organizations. In other words, many nonprofit, tax-exempt hospitals, charitable foundations and subsidiaries of those entities are exempt from the CTA.
There is a nuance for newly-created entities that are seeking, but have not formally received, tax-exempt status from the IRS. If the applicable form to apply for tax exempt status is timely filed and subsequently approved by the IRS, tax exempt status is retroactive to the date of formation of the entity; however, the CTA requires reporting companies to file a report within 90 days of an entity’s formation date if organized in 2024. There are two different ways to approach this issue. If wishing to err on the side of being conservative, a newly-created entity seeking tax-exempt status may file a CTA report while waiting for confirmation of its tax-exempt status. Once the entity receives its IRS determination letter, the entity can file an updated report to indicate that it is exempt from the CTA reporting requirements. However, the language in the statute suggests that it may not be necessary to file a CTA report at all unless the tax exemption is denied, and so some organizations may wait for correspondence from the IRS prior to deciding if a CTA report is required.
What Must Be Reported?
Any reporting company that does not qualify for one of the 23 exemptions must report “Beneficial Ownership Information”, or information regarding the individuals who ultimately own or control the reporting company to the Financial Crimes Enforcement Network. This means that anyone who owns at least 25% of the company and anyone who is able to make important decisions on behalf of the company must be included in the report (e.g., certain high-level officers/executives). The report must also include information about the “company applicant”, or the person who (i) filed the creation document on behalf of the entity, or (ii) was primarily responsible for directing or controlling the filing of the creation document on behalf of the entity.
Once the “beneficial owners” and “company applicants” have been identified, the reporting company must provide the names, birthdates, addresses, and a unique identifying number from an acceptable identification document and the image of either a passport, driver’s license, or identification document issued by a state, local government, or tribe. The reporting company must also report its full legal name, any trade name(s) or “doing business as” names, a current U.S. address, the jurisdiction of formation, the jurisdiction of first registration if a foreign entity, and IRS Taxpayer Identification Number.
When Are Reports Due?
A reporting company’s individual reporting deadline depends on its date of formation. Reporting companies created prior to January 1, 2024 have until January 1, 2025 to report, while entities created between January 1, 2024 and December 31, 2024 have 90 days from the date of creation to file their reports. Reporting companies created after January 1, 2025 have 30 days from the date of creation to file their reports.
If the information in a report changes, then the reporting company must report the change within 30 days. For example, if a physician practice is sold and the practice has new “beneficial owners”, the practice must update its report to reflect the change.
Considerations
While existing non-profit health care entities are exempt from CTA requirements, any newly created reporting companies will have to comply with the CTA unless an exemption applies, as a willful failure to comply can cause a reporting company to face penalties of $500 for each day of noncompliance and/or imprisonment of senior officers for up to 2 years.
If a reporting company has multiple owners or a complicated organizational structure, such as one that includes several holding companies or a mixture of both tax-exempt and non-tax-exempt entities, it is beneficial to begin identifying and gathering the relevant information concerning “beneficial owners” and “company applicants” now to ensure a CTA report is filed in a timely manner.
Health care entities that are reporting companies undergoing a corporate restructuring, merger, acquisition, or sale of assets, should include the above reporting requirements in its diligence process so that the resultant change is reported in a timely manner. Definitive transaction agreements should also include both representations by the reporting company regarding past CTA reports and indemnification obligations for any missed or inaccurate reports, since the penalties for CTA noncompliance are substantial.
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