Want to learn how to avoid a $500 per DAY late filing penalty that will impact most US-based businesses? Read on, dear friends, to find out how the Corporate Transparency Act will impact your business. 

Corporate Transparency Act Legislation

Back in 2020, Congress passed the Corporate Transparency Act (CTA) as part of the Anti-Money Laundering Act. The CTA establishes uniform beneficial ownership information reporting requirements for certain types of corporations, limited liability companies (LLCs) and other similar entities created in or registered to do business in the United States. 

As a result of all the COVID related legislation passed in 2020, you may have missed these new requirements. (And who could blame you?) Nevertheless, there are new reporting requirements for many US businesses that begin January 1, 2025 (for companies already in existence before January 1, 2024) or within 30 days of creation for companies formed after January 1, 2024.

So what is the CTA and what was Congress hoping to accomplish? The CTA requires beneficial ownership information reporting so as to better understand the underlying ownership structure of US businesses to prevent the hiding of illicit money in the US.

Also, the CTA authorizes the Financial Crimes Enforcement Network (FinCEN) to collect and disclose that information as permitted under the law. In fact, US citizens & residents may already be familiar with FinCEN as this is the same organization that requires a myriad of reporting requirements on foreign held checking & savings accounts, pensions, trusts and many other foreign assets.

Reporting Elements

The CTA will require the following information to be reported at least annually (or within 30 days of any changes).

The reporting company must provide:

  • Full legal name
  • Trade name or “doing business as” (DBA) name
  • Complete street address of the principal place of business in the US or primary location in the US where business is conducted
  • State, tribal or foreign jurisdiction of formation
  • State or tribal jurisdiction of registration if foreign
  • IRS taxpayer identification number (or foreign jurisdiction tax identification number if no IRS number)

In addition, the beneficial owner or company applicant must provide:

  • Full legal name of the individual
  • Date of birth of the individual
  • Complete current address
  • A unique identification number and issuing jurisdiction from one of these non-expired documents, along with an image of the document:
    • US passport
    • State, local or tribal identification document
    • State driver’s license
    • Foreign passport (if no other document)

Stiff Penalties for Noncompliance

There are significant penalties for noncompliance (late filing) up to $500 per day ($10,000 maximum). Furthermore, if fraudulent information is provided – up to two years of imprisonment.

Companies Exempt From Reporting

The following business types are exempted as reporting companies. Although they are generally in heavily regulated fields, note the “large operating company” exception which is broadly applicable.

  • Securities reporting issuer
  • Governmental authority
  • Bank
  • Credit union
  • Depository institution holding company
  • Money services business
  • Broker or dealer in securities
  • Securities exchange or clearing agency
  • Other Exchange Act registered entity
  • Investment company or investment adviser: Any entity that is:
    • An investment company as defined in section 3 of the Investment Company Act of 1940 (15 U.S.C. 80a-3), or is an investment adviser as defined in section 202 of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2), and
    • Registered with the Securities and Exchange Commission under the investment Company Act of 1940 (15 U.S.C. 80a-1 et seq.) or the Investment Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.).
  • Venture capital fund adviser
  • Insurance company
  • State-licensed insurance producer
  • Commodity Exchange Act registered entity
  • Accounting firm: But only if a public accounting firm registered in accordance with section 102 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7212).
  • Public utility
  • Financial market utility
  • Pooled investment vehicle
  • Tax-exempt entity
  • Entity assisting a tax-exempt entity
  • Large operating company: Any entity that:
    • Employs more than 20 full time employees in the United States,
    • Has an operating presence at a physical office within the United States, and
    • Filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5,000,000 in gross receipts or sales.
  • Inactive entity: Any entity that:
    • Was in existence on or before January 1, 2020,
    • Is not engaged in active business,
    • Is not owned by a foreign person, whether directly or indirectly, wholly or partially,
    • Has not experienced any change in ownership in the preceding twelve month period,
    • Has not sent or received any funds in any amount greater than $1,000, either directly or through any financial account in which the entity or any affiliate of the entity had an interest, in the preceding twelve month period, and
    • Does not otherwise hold any kind or type of assets, whether in the United States or abroad, including any ownership interest in any corporation, limited liability company or other similar entity.

How to File

While we know a fair amount about what companies are subject to reporting and what information will need to be transmitted, we don’t know everything yet. So far the guidance has been silent on HOW this information will be transmitted to FinCEN.

In the past, FinCEN has been open to authorizing income tax e-filers to transmit information directly with income tax returns. For now, we will have to wait and see what the filing systems will be. We’ll provide more information as soon as we know the requirements. 

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