By Fernando Jimenez
Starting January 1, 2024, virtually all legal business entities in the United States will be subject to the Corporate Transparency Act (CTA). With an estimated nearly 33 million small and mid-sized businesses affected by the CTA, it is important that entities understand the requirements it sets forth.
Under the Act, an entity must disclose information about its owners, officers and controlling persons, or any individual who exercises substantial control over the company, to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Recently passed with bipartisan support, the CTA aims to assist law enforcement in detecting criminal activities, including terrorist financing, money laundering and other criminal actions.
What is Required
Reporting companies are either domestic or foreign privately held companies. Information about each of the beneficial owners of a company must be submitted. A beneficial owner is defined as exercising substantial control over the reporting company or owners or controls at least 25% of the ownership interests. There are exclusions regarding who qualifies as a beneficial owner, including minor children, non-senior employees and contingent beneficiaries of a trust.
The information regarding the beneficial owners required to be reported includes legal name; date of birth; current address; ID number (passport, driver’s license, etc.); and an image of document with the ID number. Information about the individual(s) filing the required application, described as the company applicant, must also provide this information.
Existing companies must report the ownership information by January 1, 2025. Newly formed corporations and LCCs must comply with the reporting within 30 days of formation. Any ownership, name or address changes must also be reported within 30 days. There is, however, no annual reporting requirement. The information will be housed in a secure, nonpublic federal government database.
Penalties for noncompliance include a $500 a day penalty up to $10,000, a felony conviction and up to two years in prison.
Exceptions to CTA Include Highly Regulated Entities
There are exceptions to the CTA, generally for entities already operating under significant existing reporting obligations, such as banks, publicly traded corporations, polled investment vehicles and large operating businesses. To be exempt, such entities must have more than 20 employees, exceed $5 million annual gross revenue and have a physical presence at a business office in the U.S.
RJI CPAs Can Help
As with any new federal requirement, determining eligibility for filing may be difficult for certain entities. Please contact us with any questions. We are also available to help you complete your filing obligations.