Understanding the Corporate Transparency Act (CTA): New Reporting Requirements for Small Businesses Starting in 2024
Understanding the Corporate Transparency Act (CTA): New Reporting Requirements for Small Businesses Starting in 2024
Effective from January 1, 2024, a landmark law, the Corporate Transparency Act (CTA) is set to transform how corporations, LLCs, and other business entities in the United States handle their reporting requirements. Passed in 2021, the CTA brings about standardized reporting mandates, requiring specific owner details to be submitted to the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN). Noncompliance carries significant penalties, so awareness and preparation are crucial.
The Origins and Purpose of the CTA
Building upon the 2020 Anti-Money Laundering Act, the CTA was designed to prevent unlawful activities such as corruption, money laundering, terrorist financing, and tax evasion. By enhancing the transparency of ownership data, the act aims to curb the concealment of illicit gains, cash, or property within the United States.
Reporting Under the CTA: What You Need to Know
Should your business fall under the jurisdiction of the CTA, filing a beneficial owner report with FinCEN will become mandatory. This report will contain:
Full legal names, birthdates, addresses, and identification numbers (from approved documents like driver's licenses or passports) of all beneficial owners.
Company's legal name, any trade names, address, jurisdiction, and taxpayer identification number.
This information will be incorporated into a secure database accessible only to authorized government entities and financial institutions.
Timeline and Compliance
Though enacted in 2021, the CTA's implementation was delayed to allow FinCEN to define regulations and provide businesses ample time to prepare. The final rule was issued in September 2022, and the regulations will be effective from January 1, 2024.
Who Must Comply?
Every corporation, LLC, or other type of business entity which was created by filing a document with its relevant Secretary of State or similar office must file a BOI report unless it qualifies for an exemption.
Which Businesses Are Exempt?
23 Categories of business entities are exempt, including publicly traded companies and other entities that are required to file reports with the SEC, money services businesses, banks, credit unions, securities brokers, tax-exempt entities, insurance companies, and accounting firms, to name a few. There is also an exemption for companies categorized as “large operating companies.” These companies (1) employ more than 20 full-time employees in the United States; (2) have an operating presence at a physical office within the United States; and (3) have filed a federal income tax or information return in the United States for the previous year demonstrating more than $5m in gross receipts or sales.
Bottom line: most small businesses will be required to file a BOI report.
Filing Requirements and Deadlines
Depending on whether your company meets the exemptions, the required information will include company details and beneficial owner's individual information. Up to two individuals who qualify as company applicants must also be reported for entities created or registered on or after January 1, 2024.
The filing deadlines vary based on the creation or registration date of your company. For those created or registered before January 1, 2024, filing is required by January 1, 2025. For those businesses that are formed between January 1, 2024 and January 1, 2025, they must file a report within 90 calendar days of the date on which they receive actual or public notice that their creation has become effective. For entities created after January 1, 2025, they must file a report within 30 days of the date on which they receive notice their creation has become effective. The secure filing system, accessible via FinCEN’s website, is in development and will be available before the reports must be filed.
Avoiding Penalties and Ensuring Compliance
Violations can lead to a $500-a-day penalty, up to $10,000, and up to two years of imprisonment. As such, understanding the CTA and adhering to its requirements is vital.
Final Thoughts
The CTA represents an important step in combatting fraudulent and illicit activities. Though there is time to comply, acting sooner rather than later in 2024 is advisable to avoid overlooking this new requirement. Our team at the Crosier Law Firm is prepared to assist your business in Dallas-Fort Worth with these new compliance demands. Contact us today to ensure you're aligned with this essential legislation.
