Perspectives

The Corporate Transparency Act-What You Need to Know Now

On January 1, 2024, the Corporate Transparency  Act (CTA) came into effect, marking a significant step in the fight against money laundering, tax fraud, and terrorism and funding. This new law mandates the collection of beneficial owner information (BOI) for over 30 million small businesses across the United States. Here’s a breakdown of what the CTA entails and how it affects your business.

What is the Corporate Transparency Act?

The CTA is a federal law aimed at enhancing transparency in corporate ownership. By requiring a business to report information about their beneficial owners, the CTA seeks to prevent seeks to prevent illicit activities such as money laundering, tax evasion, and financing of terrorism.

Key Definitions

Reporting Company- This refers to any corporation, limited liability company, or similar entity that is created by filing a document with a secretary of state or any similar state office.

Beneficial Owner- An individual who owns at least 25% of the reporting company or has substantial control over the reporting company.

Company Applicant- The person who filed the document to create the reporting company. If multiple people were involved, it includes the person primarily responsible for directing the filing.

Reporting Requirements

Existing Companies- If your reporting company was created before January 1, 2024, you are required to provide information about your beneficial owners.

New Companies- For companies created on or after January 1, 2024, you must report information about your beneficial owners and company applicants. However, a reporting company created after January 1,2024, does not need to report its company applicants.

Identification of Company Applicants- Companies required to report must always identify at least one company applicant, but no more than two.

Filing BOI Reports

All companies subject to the CTA musts file a BOI report with the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury.

Penalties for Non-Compliance

Non-compliance with the CTA carries severe penalties:

Civil Penalty: $500 for each day the violation continues

Criminal Penalty: Up to two years of imprisonment and a fine of up to $10,000 for providing false information or failing to comply with the CTA.

Exemptions for Large Operation Companies

Some companies are exempt from the CTA requirements. To qualify for exemption, an entity must meet all the following conditions:

• employ more than 20 full-time employees in the United States
• have an operating presence at a physical office within the United States
• Filed a federal income tax return in the U.S. for the previous year showing more than $5 million in gross receipts or sales

The CTA introduces important changes for small businesses, aiming to foster greater transparency and accountability. It’s crucial for businesses to understand these new requirements and ensure compliance to avoid significant penalties. For more detailed guidance or assistance with your BOI report, please contact Wagner, Falconer & Judd.