The Corporate Transparency Act (“CTA”) passed by Congress in January of 2021, will add yet another disclosure filing requirement for small businesses. The Financial Crimes Enforcement Network, also known as FinCEN, which processes FBAR filings, is now tasked with administering the CTA and recently published final regulations which go into effect in 2024.
Why should I care about the CTA you ask? The CTA will impact many small businesses!
A “reporting company” is any entity that is a corporation, limited liability companies, or similar entities created or registered to do business in the United States, unless one of twenty-three exceptions applies. The Act applies not only to domestic entities, but also to foreign entities registered to do business in the United States.
Reporting companies are required to disclose two categories of individuals:
- The beneficial owner of the entity; and
- The individual who filed to create the entity or register it to do business.
For each beneficial owner and each individual who files an application to form a domestic entity or register a foreign entity to do business in the United States (the “company applicant”), four pieces of information must be provided: (1) the individual’s full legal name; (2) date of birth; (3) current residential or business street address; and (4) a unique identifying number from an acceptable identification document (e.g., a passport)—or the individual’s FinCEN identifier.
There are twenty-three exceptions which excuse certain companies from having to report, primarily those entities that already operate in a highly regulated area, or are under a certain size. As such, the reporting burden under the CTA falls mostly on small businesses.
Newly formed entities will be required to file within 30 days of receiving confirmation of formation from applicable government agency, usually the Secretary of State. Pre-existing entities will have one years to file its report. Additionally, reports must be updated every time there is any change to information previously reported.
Penalties for failing to properly report include both civil and criminal fines. The civil penalty is $500 for each day the violation, while criminal fines can be $10,000 and include prison sentences of up to two years.
Tax practitioners, preparers, and others throughout the business community are now well-advised to consult with their professional advisers to ensure compliance.