In 2021, the Corporate Transparency Act became law, requiring many business owners to submit additional information on the company and its beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department.
The goal of the Corporate Transparency Act (CTA) is to set a federal standard for incorporated businesses, protect national security interests, intestate and foreign commerce, and support law enforcement efforts to counter money laundering, financing of terrorism and other illicit activities.
As a result, this has created an additional reporting burden for businesses and their tax professionals with high fines for not following the reporting requirements. Below are some key points to consider if you are a business owner.
Who Does This Apply To?
The CTA requires reporting companies, beneficial owners, important decision makers in the business and those with ownership interests to comply with the new reporting requirements.
Reporting Companies
- LLCs / Single Member LLCs
- S Corporations
- Small Corporations
- Possibly Sole Proprietorships
- Note: There are 23 entity types that are exempt from reporting. We highly recommend contacting your tax professional to determine if your business is a reporting company.
Beneficial Owners
- Any person who owns or controls at least 25% of the reporting company.
- Includes stock, equity, voting rights, capital or profit interests, convertible instruments, options or privileges.
- Note: There are exempt owners such as minor children and employees. We highly recommend contacting your tax professional to determine who is classified as a beneficial owner.
Important Decision Makers
- Any person who exercises direct or indirect “substantial control”.
- Includes senior officers such as presidents, CFOs, COOs.
- An individual who controls, directs, determines, or substantially influences important decisions about the company’s business, finances, or structure.
When Do I Need to File?
If you or your company qualify, there are deadlines to file the initial report. The report filing deadlines depend on when the reporting business was established.
Initial Report Deadlines
- Companies established before 1/1/2024 = January 1, 2025.
- Companies established on or 1/1/2024 = 90 days from date of creation/registration.
- Companies established on or after 1/1/2025 = 30 days from date of creation/registration.
Changes and Corrections
- Changes that require an updated filing include but are not limited to:
- Becoming an exempt entity
- Changes in beneficial owners
- Changes in beneficial owner’s information previously reported
- Changes to a beneficial owner’s reported ID
- Changes to reported information = 30 days from the change
- Corrections on inaccurate reports = 90 days of initial filing or 30 days after the company becomes aware of the inaccuracy
Penalties for False Information/Failure to File by Deadline
- Civil Penalties = Up to $591 per day
- Criminal Penalties = Up to $10,000 and/or 2 years in prison
What Needs to be Filed?
Reporting Company
- Full legal name of the company
- Any other trade names used by the company
- The street address of the company’s principal place of business
- Jurisdiction in which the company was created/registered
- Tax Identification Number (TIN)
Beneficial Owner and Important Decision Makers
- Full Legal Name
- Date of Birth
- Current residential or business street address
- Unique identifier number for a non-expired, government issued photo ID
- An image of the government-issued photo ID used
How is it Filed?
- All reports (initial and updated) must be filed electronically through the FinCEN database portal.
- Three filing options – Downloadable PDF, Online Form, Application Programing Interface (third party filing).
If you believe you may be required to report, we highly recommend contacting your CPA to determine whether you are required to report, how they will assist with reporting and/or if they will handle the filing on your behalf.
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