- CTA and Financial Transparency: The Corporate Transparency Act (CTA) enacted in 2021 promotes financial transparency. It mandates specific entities to report Beneficial Ownership Information (BOI) to FinCEN, aiding in the fight against money laundering and terrorism financing.
- Who Must Comply: The CTA applies to a wide range of entities, with exemptions for some. Large operating entities may qualify for exemptions based on specific criteria.
- Deadlines and Penalties: Filing deadlines vary. Non-compliance leads to civil and criminal penalties, including fines and potential imprisonment. Complying with the reporting requirement is essential to avoid these consequences.
The Corporate Transparency Act (CTA) is a game-changing piece of legislation that was signed into law in 2021 as part of the National Defense Act for Fiscal Year 2021. This law introduces new rules compelling certain entities to reveal their Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN).
What is the CTA and Why Does It Matter?
The CTA, established in 2021, is all about improving business entity ownership transparency. It requires individuals who own or control a company to share the beneficial owners of any business entity registered with a Secretary of State. The primary goal is to assist U.S. law enforcement in the fight against money laundering, financing of terrorism, and other unlawful activities. It’s important to note that the CTA isn’t part of the tax code; it falls under the Bank Secrecy Act, which deals with record-keeping and reporting for certain types of financial transactions. Rather than sending BOI reports to the IRS, they must be submitted to FinCEN, which operates under the Department of the Treasury.
Who Needs to Comply with the CTA’s BOI Reporting Requirement?
The CTA applies to a wide range of entities, both within the United States and internationally. For domestic entities, it encompasses corporations, limited liability companies (LLCs), or any similar entity formed by filing with a state secretary or a similar office. However, entities not formed by filing with a secretary of state are exempt from reporting. Foreign entities are also subject to the CTA if they are established under the laws of a foreign country and have registered to conduct business in the U.S. through a filing with a secretary of state or a similar office.
Are There Exemptions from the Filing Requirements?
Indeed, there are exemptions laid out in the final regulations. The list of exemptions includes publicly traded companies, banks, credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, and certain inactive entities, among others. Many of these entities are already subject to extensive government regulations, so they already disclose their BOI to government authorities. Furthermore, the CTA exempts certain “large operating entities.” To qualify for this exemption, the company must meet specific criteria: it should employ more than 20 people in the U.S., report gross revenue or sales exceeding $5 million on the prior year’s tax return, and have a physical presence in the U.S.
When Must Companies File and What Information is Required?
Filing deadlines for the CTA vary based on factors like entity formation and any changes to beneficial owner information. Here’s a breakdown:
- New entities created or registered after December 31, 2023, must file within 30 calendar days, with a proposed rule allowing for an extension to 90 days for entities formed in 2024.
- Existing entities, established or registered before January 1, 2024, must file by January 1, 2025.
- Reporting companies with changes or inaccuracies in previously submitted information must file within 30 calendar days upon discovering the changes or inaccuracies.
The information reported includes the full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN). The beneficial owner’s information is also required, including names, birthdates, addresses, unique identification numbers, and copies of acceptable identification documents like a driver’s license or passport.
Understand the Reporting Requirement and Consequences
Non-compliance can have severe consequences, including both civil and criminal penalties. Willful non-compliance can lead to civil penalties of $500 per day, with criminal penalties including a fine of up to $10,000 and imprisonment for up to two years. It’s vital to get ahead of this requirement and ensure your business is in compliance.
Don’t hesitate to contact YHB to discuss your specific situation. As always, proactive planning is the key to compliance and understanding your reporting obligations.