Farmers, Ranchers, and the Corporate Transparency Act
Throughout the year, many farmers, ranchers, and other agricultural businesses have received notices that their operating entities may have to report under the Corporate Transparency Act (CTA). At this point, whether the CTA is relevant to agriculture is less important than understanding the CTA, especially for those involved in larger scale operations or structured as certain business entities.
Signed into law in January 2021, the CTA is part of the Anti-Money Laundering Act, which is used to combat financial crimes such as money laundering, fraud and terrorism financing. The theory is that transparency of ownership interest prevents anonymous beneficial owners from operating criminal activities behind the scenes. Granted, agricultural has not generally been seen a susceptible to these issues. However, the CTA does not exempt agricultural simply because of the business nature.
Agricultural businesses subject to the CTA reporting requirements must submit information to the Financial Crimes Enforcement Network (FinCEN), including:
1) Full legal names and addresses of beneficial owners
2) Identification numbers (social security or driver’s license number); and
3) Date of birth of each beneficial owner
Farmers, ranchers or other ag businesses who operate as sole proprietorships are not required to report. However, farm entities that operate as LLC’s, partnerships, or other corporate entities which have less than 20 full time employees or gross under$5 million annually are governed by the CTA
Failure to comply may result in significant penalties, including civil fines and possible criminal penalties. Compliance may also prevent additional federal scrutiny and audit risks.
Compliance with the CTA includes the following steps:
1) Identify Beneficial Owners: A “beneficial owner” is anyone who owns 25% or more of the entity or has significant control of the entity. For family farms, a beneficial owner will likely include family members who own a stake or have decision making power
2) Prepare Required Documentation: Ensure that all beneficial owners have the necessary documentation such as government issued ID and business registration paperwork
3) Set Up a Reporting System: Designate a point person for CTA reporting, whether that is a family member, farm manager, or financial advisor. For some farms, legal counsel may be necessary to make sure the business remains up to date with regulatory or business changes
4) Monitor for Updates: Ag advocacy groups, trade associations, and legal advisors can be utilized to monitor changes to the CTA requirements over time.
We have fielded calls on whether a farming and ranching entity needs to comply, especially considering the expected change in the administration. At this time the default response is to comply. The risks, costs and potential issues from non-compliance outweigh the inconvenience of reporting as required.
As always, it is recommended to seek counsel and advice from a professional accountant or legal counsel to determine whether the CTA may apply to your farming or ranching business.
