The Corporate Transparency Act

A new item for practice compliance

By Paul J. Welk, JD, PT

Even readers new to Impact Magazine and private practice physical therapy are likely aware of the numerous compliance obligations that fall upon practice owners, clinical staff, and the practice legal entities themselves. These obligations cover a broad range of topics including documentation, coding, HIPAA, Medicare, and a variety of other subjects. This article will examine the Corporate Transparency Act (CTA), a new item to consider on the practice’s list of compliance requirements.

WHAT IS THE CTA?

In an effort to help curtail financial crimes such as money laundering, corruption, and tax fraud, the United States Congress enacted the CTA on January 1, 2021, as part of the National Defense Authorization Act for Fiscal Year 2021. The CTA amended the Bank Secrecy Act to include provisions requiring the reporting of beneficial ownership information for certain entities to the United States Treasury Department’s Financial Crime Enforcement Network (FinCEN).^a On September 30, 2022, FinCEN published its final regulations implementing the CTA (“Final Rule”).^b Key provisions of the Final Rule, which becomes effective January 1, 2024, are summarized below.

The Final Rule outlines many aspects of the CTA, including which entities are required to file, the information that needs to be reported, applicable timelines, and penalties for failure to comply with the CTA. The Final Rule is approximately 100 pages in length, and this article is not intended to provide all the information needed to assess a practice’s compliance requirements, but rather to provide a general awareness of the issues and serve as a starting point for further assessment.

DEFINITION OF ‘REPORTING COMPANY’

It is estimated that the CTA will affect over 32 million entities. Therefore, the initial question for a practice to consider is whether it falls within the definition of a “reporting company,” the term that FinCEN uses to refer to a company required to report its beneficial ownership, or whether the practice fits within one of the 23 exempt categories included within the CTA. While many of the 23 exempt categories would not apply to a private practice physical therapy practice, some could apply. By way of example, there is an exemption for large operating companies which are defined as companies with 20 or more full-time United States employees, more than $5 million in gross receipts or sales, and a physical operating presence in the United States. While some physical therapy practices will fall within an exemption and as a result would not be subject to the requirements of the CTA, the vast majority of practices will be required to report.

BENEFICIAL OWNERS

If a practice is determined to be a reporting company under the CTA, it must report beneficial ownership information. Beneficial owners are defined 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.”^c The Final Rule goes into detail regarding this definition, and each reporting company will need to determine who qualifies as a beneficial owner under the CTA for reporting purposes. Similar to the regulatory construct for determining whether a practice is a reporting company, there are exceptions to the definition of “beneficial owner,” such as an individual acting solely as an employee of the company whose control is derived from their employment status. For each beneficial owner, a reporting company must provide the full legal name, date of birth, address, and a unique identifying number (for example, a driver’s license number). Once a report is filed, a reporting company that has a change in beneficial ownership information must file an updated report within 30 days of the change.

As of the date this article was drafted, FinCEN is establishing a new system called the Beneficial Ownership Secure System that will manage CTA reports. Once this system is available, FinCEN will presumably provide additional guidance on the reporting process. From a timing perspective, reports will not be accepted before January 1, 2024. At that point, an entity created on or after January 1, 2024, must file its initial report within 30 days of the date the entity is created. For those entities formed before January 1, 2024, the initial report is due no later than January 1, 2025. Once this information is gathered by FinCEN, it will be stored in a secure database that is not publicly available, but the information will be made available to certain entities and organizations such as federal law enforcement agencies and financial institutions for aiding in due diligence on potential customers.^e

FAILURE TO COMPLY WITH CTA REQUIREMENTS

In terms of enforcement, failure to comply with the requirements of the CTA by willfully providing false information to FinCEN or failing to report complete information may result in fines of up to $10,000 and imprisonment for up to two years.

Given the time between the publication of this article and certain of the CTA’s compliance deadlines, one might wonder what should be done between now and the applicable compliance date. Initially, it is anticipated that FinCEN will continue to provide additional guidance as the compliance deadlines under the CTA approach. Monitoring the FinCEN website from time-to-time may prove to be beneficial in preparing for compliance, as this website already has a number of useful resources.^f Some additional considerations relative to the CTA are whether or not any affiliated company that, for example, holds the practice’s real estate may be subject to the CTA and the role that the CTA may play in future due diligence and contracting matters (for example, will it become usual and customary for certain vendor contracts to make practices represent that they are CTA complaint?).

Also, the CTA may provide another reason to dissolve an entity that is no longer involved in the practice of physical therapy or any other business. Finally, commentary on the CTA notes a general lack of state laws requiring the identification of beneficial owners and acknowledges that in general the United States has lagged behind certain countries in establishing safeguards to minimize the flow of illicit funds. As a result, it may be wise for practice owners to consider what state law reporting requirements may be in place now or come into effect in the future.

In summary, the CTA adds yet another item to be addressed by physical therapy private practices from a compliance perspective. It is important for practices to consider whether the CTA applies to them and, if so, to take appropriate steps to comply by the applicable deadline.

References:

^aSee Beneficial Ownership Information Reporting: www.fincen.gov/boi

^bSee Beneficial Ownership Information Reporting Requirements (Final Rule)

^cSee Beneficial Ownership Information Reporting Requirements, 87 Fed. Reg. 59525 (September 30, 2022).

^eSee 31 U.S.C. § 5336(c)(3) Federal Register: Beneficial Ownership Information Reporting Requirements

^fSee, for example, Final Rule Fact Sheet: www.fincen.gov/boi

Paul Welk, JD, PT, is an APTA Private Practice member and an attorney with Tucker Arensberg, P.C. where he frequently advises physical therapy private practices in the areas of corporate and healthcare law. Questions and comments can be directed to pwelk@tuckerlaw.com or (412) 594-5536.