The Corporate Transparency Act (“CTA”) took effect on January 1, 2024 and requires certain corporate entities to report on beneficial owners. There are a number of defined exceptions to the reporting requirements, and owners and operators of healthcare organizations should consider whether or not the reporting requirements apply to them and, if so, what they need to do to comply.
Who should report?
Unless an exception applies, any “reporting company” or any corporation, limited liability company, and any other entity created by filing a document with the Secretary of State or other similar office in the United States, as well as entities incorporated under the laws of foreign country that have registered to do business in the United States must file a report. This largely covers hospitals/health care facilities, physician practices, medical spas, ambulatory surgery centers, urgent care clinics, physician and occupational therapy practices, mental health clinics, and more.
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 these entities . In other words, many nonprofit, tax-exempt hospitals, charitable foundations, and subsidiaries of these organizations are exempt from the CTA.
There is a nuance for newly formed entities that seek but have not officially received tax-exempt status from the IRS. If the applicable application form for tax-exempt status is timely filed and subsequently approved by the IRS, the 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 the entity’s date of incorporation if it was organized in 2024. There are two different ways to approach this question. If it wishes to err on the side of conservatism, a newly formed entity seeking tax-exempt status can file a report with the CTA while awaiting confirmation of its tax-exempt status. After the entity receives its IRS determination letter, the entity can file an updated return to indicate that it is exempt from CTA reporting requirements. However, language in the statute suggests that a CTA report may not need to be filed at all unless the tax exemption is denied, and so some organizations may wait for correspondence from the IRS before deciding whether a CTA report is required .
What should be reported?
Any reporting company that does not qualify for one of the 23 exemptions must report “Beneficial Ownership Information,” or information about the persons 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 in a position to make important decisions on behalf of the company must be included in the report (eg certain high-level employees/contractors). The report must also include information about the “company applicant” or the person who (i) filed the formation document on behalf of the entity, or (ii) is primarily responsible for directing or controlling the filing of the formation document on behalf of of the entity.
Once the “beneficial owners” and “candidate companies” have been identified, the reporting company must provide the names, dates of birth, addresses and unique identification number from an acceptable form of identification and the image of a passport, driver’s license or government-issued identification document. local government or tribe. The reporting company must also report its full legal name, any trade name(s) or “doing business as” names, current US address, jurisdiction of incorporation, jurisdiction of first registration if a foreign entity , and IRS Taxpayer Identification Number .
When are the reports produced?
The individual reporting deadline of the reporting company depends on the date of its creation. Reporting companies formed before January 1, 2024 must report by January 1, 2025, while businesses formed between January 1, 2024 and December 31, 2024 have 90 days from the date of formation to file their reports. Reporting companies incorporated after 1 January 2025 have 30 days from the date of incorporation to file their returns.
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 not-for-profit healthcare organizations are exempt from the CTA requirements, all newly created reporting companies will be required to comply with the CTA unless an exception applies, as willful non-compliance can cause the reporting company to face penalties of $500 for each day default and/or imprisonment of senior officers for up to 2 years.
If a reporting entity has multiple owners or a complex organizational structure, such as one that includes several holding companies or a combination of exempt and non-exempt entities, it is helpful to begin identifying and gathering relevant information about “beneficial owners” and “candidates of companies’ now to ensure that the CTA report is filed on time.
Healthcare entities reporting companies undergoing a corporate restructuring, merger, acquisition or asset sale should incorporate the above reporting requirements into their due diligence process so that the resulting change is reported in a timely manner. Final transaction agreements should also include both statements by the reporting company regarding past CTA reports and indemnification obligations for any omitted or inaccurate reports, as the penalties for non-compliance with the CTA are significant.
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