The Corporate Transparency Act of 2020 (“CTA”) went into effect January 1, 2024, and has the ability to impact millions of individuals and businesses throughout the country. Anyone owning interest in, or having substantial control of, a new or existing business that operates in the United States needs to familiarize themselves with the CTA and how it may impact them and their business interests. Below is a short summary of the most salient terms of the CTA:
What is the Corporate Transparency Act of 2020?
The CTA is touted as an “anti-money laundering law” which requires that most businesses operating in the United States disclose information related to their underlying ownership to a database established and maintained by the Financial Crimes Enforcement Network (“FinCEN”) within the United States Department of Treasury. This database will be available to law enforcement agencies throughout the United States with the goal of preventing businesses from using shell companies to commit illegal acts such as tax evasion, money laundering, and terrorism.
Who must report under the CTA?
- Most Companies Created or Doing Business in the U.S.
Companies required to report include corporations, limited liability companies, or any other entity that is created within the United States and any other entity that is formed under the law of a foreign country and is registered to do business in the United States.
- Exemptions
Companies exempt from these reporting requirements include, but are not limited to, publicly traded companies, banks, brokers or dealers in securities, investment companies or investment advisors, venture capital fund advisors, pooled investment vehicles, tax-exempt entities, subsidiaries that are wholly owned, directly or indirectly, by certain exempt entities, certain inactive entities, and certain companies that have 20 or more full-time U.S. employees and filed a federal income tax return for the prior year reporting more than $5,000,000 in gross receipts or sales.
What information must be reported?
- Company Information
- Full legal company name and all tradenames and d/b/a designations
- The company’s street address for principal place of business
- Jurisdiction of formation and registration of the Company
- Company tax identification number (TIN)
- Ownership Information
A list of all “beneficial owners” and “applicants” of the reporting company. A beneficial owner is defined as any individual who either exercises substantial control over the company or directly or indirectly owns or controls at least twenty-five percent (25%) of the entity. The applicant is the individual who directly files the documents creating the company.
Note, each company must report the actual underlying individual owners of the entity, and it is important to read the CTA requirements to determine who must report. For example, if a reporting company is owned by a trust, the reporting company must look through the trust and report the Trustee(s) and individual beneficiaries as the beneficial owners of the reporting company.
Below is the information required for beneficial owners and applicants:
- Name
- Date of Birth
- Address
- Passport or Driver’s License Number
- Picture ID
When is the deadline to comply with the CTA?
- Existing entities (formed prior to January 1, 2024) must file the initial report prior to January 1, 2025.
- Entities formed this year (after January 1, 2024, but before January 1, 2025) must file the initial report within ninety (90) days of formation.
- New entities (formed after January 1, 2025) must file the initial report within thirty (30) days of formation.
- If there is any change to the required information contained in the BOI Report, the company must file an updated BOI Report within thirty (30) days from the occurrence of the change/correction.
Consequences for inaccurate reporting or failing to comply
- Violators may be subject to fines of $500 a day up to $10,000 total per violation.
- Violators may be subject to imprisonment for up to two (2) years.
- Additional criminal penalties and imprisonment may apply in certain circumstances.
The overall effect of the CTA is to allow the federal government to pierce blind business entities to identify the underlying ownership of such entities. As the above information makes clear, the reach of the CTA is extensive, and the penalties for failure to report are onerous. There are many nuances to the reporting requirements for the CTA, and as a result, all individuals with business dealings are strongly encouraged to determine whether they (and their business(es)) will be subject to these reporting requirements.
Because of the above-mentioned penalties for failure to meet the CTA filing requirements, many accountants and law firms (including BCK) are not handling CTA filings directly and are instead referring clients to specialized service providers. As such, individuals with business interests are encouraged to review the CTA filing requirements and engage a qualified CTA filing service to ensure compliance with applicable deadlines.
For more information on the CTA and to submit Beneficial Ownership Information, you can review these pages on the FinCEN website: