Key Takeaways
- The Corporate Transparency Act (CTA) mandates federal beneficial ownership disclosures for certain “reporting companies”.
- Required “reporting companies” includes most entities formed under state law, like LLCs, LLPs, and corporations.
- Failure to comply with the CTA can result in a $500-per-day penalty (up to $10,000) and possible criminal penalties.
The Corporate Transparency Act (CTA), enacted on January 1, 2021, mandates new federal beneficial ownership disclosures for certain companies. These new disclosures aim to counter certain illicit activities. Effected companies must report certain information to the Financial Crimes Enforcement Network (FinCEN) starting January 1, 2024.
Who is Required to Report Under the Corporate Transparency Act?
The CTA requires “reporting companies” to file reports with FinCEN identifying the company’s beneficial owners (and certain other information). A reporting company is defined to include most entities formed under state law, like LLCs, LLPs, and corporations.
Beneficial ownership generally means any of the following:
- People with substantial control
- People with ownership interests, whether indirect or direct, equal to at least 25% of the company’s equity interests
- Company applicants
There are numerous exemptions—meaning an entity is not a “reporting company”—including:
- Banks, bank holding companies, credit unions, governmental entities, publicly traded companies, insurance companies, public accounting firms, and tax-exempt entities.
- “Large operating companies” that have a physical office in the U.S., more than 20 U.S.-based, full-time employees, and more than $5 million of gross receipts reported on a prior federal tax return.
Existing reporting companies must file with FinCEN between January 1, 2024, and January 1, 2025, while reporting companies formed on or after January 1, 2024, must file within 30 days of formation.
What Information is Reported under the Corporate Transparency Act?
A reporting company is required to disclose its full legal name, address, FEID, and state of jurisdiction. Additionally, it must also disclose the following information for any beneficial owners:
- Legal name
- Date of birth
- Address
- A unique identifying number¬—such as a driver’s license or passport number—¬including a scanned copy of the form of identification
Possible Non-Compliance Penalties
Failure to comply with the CTA can result in a $500-per-day penalty (up to $10,000) and possible criminal penalties.
Next Steps for CTA Required Reporting Companies
The CTA does not directly involve the IRS, and no CTA disclosures are required with any federal or state tax filings. Therefore, accounting firms and other tax return preparers are not generally responsible for any client FinCEN filings.
We advise companies affected by the CTA to potentially seek legal counsel for assistance with these new filing requirements.
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