At a Glance
- On Monday, July 8, 2024, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) released additional FAQs specifying that reporting companies created or registered on or after January 1, 2024, that are subsequently dissolved or cease to exist, are required to make a CTA filing even if such reporting companies cease to exist prior to the due date for their initial CTA filing.
- A company is not required to make a CTA filing if it ceased to exist as a legal entity before January 1, 2024.
- The same reporting timelines apply to reporting companies that cease to exist on or after January 1, 2024: reporting companies created or registered in 2024 are still required to file initial CTA filings within 90 days of creation or registration, and reporting companies created or registered in 2025 or later must file initial CTA filings within 30 days of creation or registration.
- FinCEN’s guidance does not discuss whether there is an obligation to update information reported for reporting companies that are dissolved or cease to exist.
On Monday, July 8, 2024, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) released additional FAQs specifying that a reporting company (i.e., a company to which no exemption applies) created or registered on or after January 1, 2024, that is subsequently dissolved or ceases to exist, is required make a Corporate Transparency Act (CTA) filing even if it is dissolved or ceases to exist prior to the due date for its initial CTA filing (See the FinCEN FAQs). FinCEN makes clear that entities completely dissolved or that ceased to exist prior to January 1, 2024, do not have CTA reporting obligations. As discussed in our previous alert, the CTA is a new federal law designed to combat money laundering, tax evasion and other illicit financial activities by requiring “reporting companies” to disclose beneficial ownership information about their “beneficial owners” to FinCEN.
Reporting companies for which a dissolution process commenced prior to 2024 but were not dissolved “formally and irrevocably” prior to 2024 are still required to make a CTA filing. FinCEN clarified that entities that are administratively dissolved do not generally cease to exist as a legal entity until the dissolution becomes permanent. In other words, if a reporting company legally existed at any point in 2024, a CTA filing is required by the applicable filing due date — even if the reporting company does not exist by such due date. The applicable filing due date varies. Reporting companies created or registered in 2024 have 90 days from the date of creation or registration to file. Reporting companies created or registered in 2025 or later have 30 days from the date of creation or registration to file.
Notably, FinCEN drew a distinction between reporting companies that are dissolved and those that cease to exist, thereby suggesting its intention to capture varying structures in the CTA’s ambit that end a reporting company’s existence. Dissolution is one means to bring about the end of a reporting company’s existence and there are others, such as a merger in which a reporting company is merged out of existence. While reporting companies that are merged out of existence are not referenced in FinCEN’s guidance, such entities cease to exist at the consummation of the merger and, therefore, are arguably covered by the guidance. Thus, there are CTA considerations in M&A transactions that involve the creation of a newly formed entity that is ultimately merged out of existence.
You may be wondering how to determine when a reporting company is dissolved or ceases to exist. In addressing this question, FinCEN deferred to the laws of the jurisdiction of formation or registration.
Regarding updated reports, if a reporting company files an initial CTA filing and then is dissolved or ceases to exist, FinCEN does not require the reporting company to file an additional report with FinCEN noting that the company has ceased to exist.
While FinCEN’s new guidance clarifies some important points, it raises additional considerations. It is not clear whether a reporting company created or registered on or after January 1, 2024, that is subsequently dissolved or ceases to exist is required to update or correct previously reported information. In addressing update obligations, FinCEN makes clear that there is no need to make a filing indicating that a reporting company has ceased to exist, but it stops short of clarifying whether any other update obligations are cut off. Could it be that FinCEN intends for such reporting companies to have ongoing compliance obligations long after the end of their legal existence?
Further, FinCEN has not clarified what information is to be reported by such a reporting company. For example, in the course of winding up its affairs, a reporting company may be terminating employees, thus, beneficial owners to be reported could significantly vary at one point or another. It seems that determining who should be reported as a beneficial owner in such circumstances is a bit of a moving target. Moreover, it is not clear who should be responsible for filing either the initial CTA filing or any updates, if any are required, for such reporting companies. If all the employees and owners are no longer associated with the reporting company, it is not clear who would be left to handle CTA reporting obligations.
