How the CTA Affects You

Small business owners have one more item on their compliance to-do list, now that the Corporate Transparency Act (CTA) has taken effect.

The CTA places new reporting requirements on many business entities in an effort to expose illegal activities, including the use of shell companies to launder money or conceal illicit funds. Around 30 million small businesses will be impacted by the law, which will establish a federal database of information, furnished by “reporting companies,” that will be accessible to certain authorities and organizations.

What does the CTA require?

Effective January 1, 2024, the CTA requires that certain businesses disclose to FinCEN information about the company, its beneficial owners, and in some cases, the company applicant.

Reporting companies—defined as any company with twenty or fewer employees that is formed by filing paperwork with the Secretary of State or equivalent official—that are created or registered prior to January 1, 2024, have until January 1, 2025, to file an initial report; reporting companies created or registered after January 1, 2024 and before January 1, 2025, will have ninety days after creation or registration to file a report. Entities created on or after January 1, 2025 will have 30 days to submit the reports to FinCEN.

Does the CTA require my business to report?

The CTA applies to companies that are created by filing a document with a state authority. Typically, this includes corporations and limited liability companies. Depending on the state, it could also include limited partnerships, professional associations, cooperatives, real estate investment trusts, and trusts. In addition, the CTA applies to non-US companies that are registered to operate in the United States.

NFIB estimates that, based on these rules, 30 million small businesses will have to report to FinCEN. However, the CTA exempts around two dozen categories of companies, including companies that

●      are publicly-traded;

●      have more than twenty full-time US employees;

●      filed a previous year’s tax return showing more than $5 million in gross receipts or sales;

●      have an operating presence at a physical US office location;

●      operate in a regulated industry, such as banking, utilities, or insurance, that already imposes similar reporting requirements; or

●      are subsidiaries of exempt organizations.

The exemptions, which generally include larger companies that are already subject to regulation, underline the primary purpose of the CTA: to combat money laundering and other illicit activities conducted via small, private, and anonymous shell companies.

The information to be filed with FinCEN is called a Beneficial Ownership Information (BOI) Report. The following is what is required in the report for a company, an owner, and an applicant:

●      The reporting company must provide its name and any alternative (DBA) names, the address of its principal place of business, the state of formation, and its taxpayer identification number or FinCEN identifier.

●      Each beneficial owner of a reporting company must furnish their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification (ID), along with a copy of the ID document.

●      A company applicant is required to submit the same information as a beneficial owner.

Are there penalties for noncompliance with the CTA?

YES. Penalties for noncompliance may be steep. Willingly providing false information (including false identifying documents) to FinCEN, or failing to report complete BOI information, can result in:

●      Fines of $500 per day, up to $10,000

●      Imprisonment for up to two years

Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submits an updated report correcting the inaccurate information within ninety days.

Join the Roller Coaster of Court Decisions

Since it went into effect, there have been a number of lawsuits challenging the constitutionality of the CTA. The decisions have been varied and contradictory, the most recent being issued from the United States Supreme Court. The current status as of this blog post is that the CTA is back on, and companies are required to submit their information. The current belief is that some version of the CTA will survive the varied legal challenges, so it is safest to go ahead and report so that your company is not caught flat footed with the next decision.

Get help with CTA reporting requirements.

Understanding how the CTA applies to you, how it will affect your business, and what you must do to comply introduces new burdens that you may have scarce resources to address. Terms like “beneficial owner” and “substantial control” may seem vague and confusing, further complicating compliance efforts. But compliance is critical for business owners who want to avoid possible sanctions. If this all sounds overwhelming, or too much of a time investment, just give us a call at 614-334-6850, and we can help you meet your CTA reporting requirements.