As of January 1, 2024, a new law called the Corporate Transparency Act (CTA) has gone into effect, which may require qualifying entities (known as reporting companies) to submit certain information to the Federal government that was not previously required to be reported. The CTA is aimed at combating money laundering, tax evasion and other illicit activities, including the use of shell companies. The failure to report can result in significant fines outlined below.
What is the Corporate Transparency Act?
The CTA is a law that requires business entities it identifies as reporting companies to disclose certain information about the company and its owners to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Under the CTA, a reporting company is a corporation, limited liability company (LLC), or other similar entity created by filing a document with the secretary of state or a similar office under the laws of a state or Indian tribe or formed under the laws of a foreign country and registered to do business in the United States. The following information about the reporting company must be included in the report:
- company’s legal name, and any trade name or “doing business as” name
- street address of the principal place of business
- jurisdiction in which the business was formed
- tax identification number
Additionally, the reporting company must provide information about its beneficial owners, who are defined as persons holding significant equity (25 percent or more ownership interest) in the reporting company or who exercise substantial control over the reporting company. Company senior officers, directors, and others who make significant decisions on behalf of the company may meet this statutory definition of “substantial control.” The information that must be provided is as follows:
- full legal name
- date of birth
- current address
- unique identification number from an “acceptable identification document”
Reporting companies created on or after January 1, 2024, must also provide the same information about the company’s applicant (i.e., the person who files the creation documents for the reporting entity).
Are there penalties for noncompliance with the CTA?
Penalties for noncompliance may be steep. Willingly providing false information (including false identifying documents) to FinCEN, or failing to report complete Beneficial Owner Information “BOI” information, can result in:
- Fines of $500 per day, up to $10,000
- Imprisonment for up to two years
Does the CTA impact you?
As discussed above, the CTA applies to most entities. It does however, exempt 23 entity types from reporting compliance. The more common exemptions cover public companies, “large operating companies,” public accounting firms, regulated insurance companies, registered investment companies and advisers, registered venture capital fund advisers, banks, securities brokers and dealers, exchanges, regulated public utilities, tax-exempt non-profits and trusts, subsidiaries of exempt entities, and “inactive entities.” The exemption for “large operating companies” requires monitoring of employee levels and revenues. The CTA defines this entity as one that (i) employs more than 20 employees full-time in the U.S. (no aggregation), (ii) has filed U.S. income tax returns for the prior year reflecting more than $5 million in aggregate gross receipts or sales from U.S. sources, and (iii) operates a physical office in the U.S. These exemptions should be reviewed to determine whether or not they apply to your particular situation.
What do you have to do to comply with the CTA?
To comply with the act, you should gather the required information for all reporting companies that you are a beneficial owner of, as well as the information for any additional beneficial owners. Entities created before January 1, 2024, must submit the required reports by January 1, 2025. A reporting company created on or after January 1, 2024, and before January 1, 2025, must file its initial report within 90 days of the entity’s creation. Entities created on or after January 1, 2025, will have 30 days to submit the reports with FinCEN.
To complete the necessary filings, please go to: www.FinCEN.gov/boi. At this time, there is no plan for Canarick & Canarick to prepare or be responsible for the filing. The FinCEN site contains many Q&A’s as well as important information, and you may wish to visit the site prior to the completion of the actual reporting.