Unless you are a business lawyer, it is likely that you are among the multitudes of people who have paid no attention to the Corporate Transparency Act (“CTA”). But if you are an aircraft owner – whether the CEO of a company with a corporate jet or a weekend warrior pilot – there is a good chance that the CTA applies to you. If so, and if you fail to comply with the CTA’s requirements, there may be consequences.
Here is what you need to know:
What is the Corporate Transparency Act?
The CTA is a new federal law that became effective January 1, 2024. The CTA requires most business entities, such as limited liability companies, to report information about their beneficial owners. The CTA is intended to assist the federal government in detecting, preventing, and punishing terrorism, money laundering, and other misconduct carried out through business entities. The CTA is helping to create a new database managed through the U.S. Treasury Department’s Financial Crimes and Enforcement Network (“FinCEN”).
Under the CTA, any business entity, d/b/a, etc. that has filed documentation with a Secretary of State in the U.S. will need to report its beneficial ownership information (“BOI”) to FinCEN. The BOI report includes personal information about an entity’s beneficial owners, including name, address, date of birth, and other information, along with a unique identifying number from a driver’s license, passport, or other accepted documentation.
Beneficial owners are any individuals who either directly or indirectly:
- Exercise substantial control over the reporting company, or
- Own or control at least 25% of the reporting company’s ownership interests.
An entity can, in fact, have multiple beneficial owners. The entity is also responsible for continuing to update BOI reports if something changes, such as an owner’s address.
The entities required to report their BOI are generally smaller, more lightly regulated entities, whereas larger, more heavily regulated entities are exempt from reporting. When a company is subject to the CTA, however, there are tight and specific reporting requirements. A reporting entity created or registered to do business before January 1, 2024, will have until January 1, 2025 to file its initial beneficial ownership information report. A reporting entity created or registered on or after January 1, 2024, will have 90 days to file its initial beneficial ownership information report. Please click here to learn more about the CTA’s reporting requirements and exemptions, and consequences for non-compliance.
So what does the CTA have to do with business aircraft owners?
Unlike many large-scale federal laws and regulations, the CTA does not exclude small to mid-sized entities. And, for better or worse, many aircraft owners want to avoid being the direct registered owners of their aircraft and instead create an entity to be the aircraft owner. If this entity is a limited liability company (LLC), corporation, or any other entity created by filing a document with a Secretary of State in the U.S., that entity is going to be subject to the CTA. for example, if you and your sibling own an aircraft in an LLC, or your operating business purchased an aircraft and holds it in a wholly owned subsidiary, the purchasing entity will need to file a BOI Report. In most cases, this will be fairly easy to do, as many entities created for aircraft ownership, leasing, and management are LLCs with simple ownership structures.
To be clear, the CTA has nothing to do with the ownership, operation, or registration of aircraft. But the owners of aircraft are frequently going to be swept up into its reach.
Entities Created for Shared Aircraft Ownership, Leasing, or Management
What about more complicated aircraft ownership structures? Or other complexities?
If an LLC has multiple beneficial owners, or if an aircraft is owned through a more complicated parent-subsidiary model, the CTA reporting requirement will likely be more burdensome. For example, if an aircraft is owned by an LLC and that LLC’s sole member is another entity, the BOI report will need to show which individuals are the actual owners under the definitions in the CTA. So, reporting information will be needed for any beneficial owners that can be linked to the LLC and not just the other entity. Ultimately, the aircraft LLC will need to report on the beneficial owners of the parent company as well. If the parent company is further owned by other entities, the filing requirement extends to all of the beneficial owners, which must be individuals.
To help explain how this would play out, here is an example ownership structure of an aircraft:
In this scenario, Leasing Company LLC owns the aircraft. The beneficial owners of Leasing Company LLC would be the following:
- Any individual exercising substantial control over Leasing Company LLC (this can include officers, managers, directors, etc.), and
- Any individual that owns or controls at least 25% of the interest.
Here, because Owner 1 LLC, Owner 2 LLC, and Owner 3 LLC each own 33% of the interest in Leasing Company LLC, a BOI report is necessary for each entity. This means the analysis continues for each entity. For purposes of this example, Smith, Johnson, and Peterson each own 100% of their respective LLCs. As such, Smith, Johnson, and Peterson will all need to be included in the initial BOI report for Leasing Company LLC.
After the initial report is filed, Leasing Company LLC is obligated to update their reporting information if the information changes for any of its beneficial owners. This means that if Smith and his family move to a new address, Leasing Company LLC must update its reporting information with FinCEN. Failure to file a report or a necessary update can result in civil or criminal penalties.
What if My Aircraft is Owned by a Trust?
Another common way to own U.S. registered aircraft, especially for non-U.S. citizens, is to have a trust own and register the aircraft with the Federal Aviation Administration, with the economic owner being the beneficiary of the trust. Whether trust ownership needs to comply with the CTA can be a more complicated question.
Reporting under the CTA is required for any entity that was created through a state filing. If your aircraft is owned by a statutory trust, which is a trust formed with a state filing, the trust itself must be reported under the CTA, as well as its beneficial owners. The beneficial owners will be those individuals exercising substantial control over important decisions such as the sale, lease, or financing of the aircraft. If the beneficiary is an entity, you will need to evaluate the ownership and structure of that entity to narrow it down to those individuals exercising substantial control over that entity (i.e. members, officers, directors, etc.) or owning at least 25% of the entity, as we saw in the example above.
If your aircraft is owned by a grantor trust or common law trust, this is a trust that has not been created through a state filing. Therefore, the trust itself need not be reported under the CTA. However, if the beneficiary of the trust is an LLC or another entity, that entity would need to comply with CTA filing requirements.
Conclusion
The reporting requirements under the CTA have a broad reach, and they can include business entities created for purposes of aircraft ownership. Determining who are the beneficial owners, what information needs to be reported, and developing a system for tracking necessary updates can all be a complicated analysis. Our attorneys have been assisting a number of clients with this analysis, so please reach out to Kristina Keppeler, Kevin Johnson, or Pat Shriver with any questions you might have. They are happy to provide guidance for navigating the CTA and its reporting requirements.
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