What Does Your Business Need to Know About the Corporate Transparency Act?
Key Steps for Small Businesses to Comply with the Corporate Transparency Act
The Corporate Transparency Act (CTA) will be taking effect on January 1, 2024. Affected entities, including most small businesses, should be aware of the requirements and prepare for the beneficial ownership information (BOI) reporting requirements.
What is the Corporate Transparency Act?
The CTA, which was enacted into law in January 2021 and has a start date of January 1, 2024, establishes uniform reporting requirements for specific business entities in the United States. Eligible businesses will be required to electronically file a report with the Financial Crimes Enforcement Network (FinCEN) that contains personal identification information about the company, its beneficial owners, and its company applicants.
The intention of the CTA is to establish a registry of business owners in order to prevent money laundering and other illegal financial activities through unregulated businesses. An estimated 32 million entities will be required to register with FinCEN. The registry will not be accessible by the public.
Who Will be Required to Report Under the CTA?
The CTA is broadly applicable to most small businesses, including:
- C corporations
- S corporations
- Limited liability companies (LLC)
- Other business structures formed through the secretary of state
- Foreign entities who are registered to do business in any of the 50 U.S. states or tribal jurisdictions
Some entities are excluded because they are already subject to federal or state regulation. These include large companies with more than 20 full-time employees who are based in the United States, have a physical office in the United States, and have more than $5 million in gross receipts or sales in the United States. Subsidiaries of larger companies are also exempt from CTA reporting.
This means that the required reporting under the Corporate Transparency Act will primarily affect small businesses and family-operated businesses. Some family businesses may qualify as a large operating company or as a subsidiary of a larger business and may be exempt from reporting.
Additionally, LLCs and other legal entities that were formed in order to hold real estate and other assets will be subject to reporting. At this time, trusts are not currently subject to CTA reporting, trusts that own at least 25% of a reporting company will be required to report. Charitable organizations and private foundations are also currently exempt from CTA reporting.
What Information Must be Reported to FinCEN?
Reporting companies will be required to disclose specific information about their business entity, including:
- Legal name
- Trade name
- Business address
- Jurisdiction information
- Taxpayer identification number
- Personal information of each beneficial owner, including legal name, date of birth, address, and a copy of an identification document
- Personal information of company applicants for companies formed on or after January 1, 2024
When are Reports to FinCEN Due?
Existing Businesses
Reporting companies that are created or registered before January 1, 2024, have one calendar to file their BOI reports, which are due by January 1, 2025.
New Businesses
Companies that are created on or after January 1, 2024, are required to file their initial reports within 30 calendar days of the date on which it receives notice that its creation has been effective, when it has been registered to do business, or when the secretary of state provides first public notice – whichever is earliest.
After the initial filing, all reporting companies have an obligation to keep their BOI reports current.
How Can My Business Prepare for CTA Reporting?
Individuals who own or hold an interest in a business should determine whether their entity qualifies as a reporting company under the Corporate Transparency Act. Some businesses may wish to restructure in order to become exempt from reporting. If your business is required to make reports to FinCEN, you should begin to maintain accurate records, identify the beneficial owners and company applicants who are required to report and develop a process to submit timely reports. Each business will need to obtain a unique identification number from FinCEN as part of the process.
Failure to comply with the Corporate Transparency Act’s reporting requirements will result in civil and criminal penalties. The civil penalties are $500 per day per entity, and criminal penalties are $10,000 and up to 2 years in prison.
Looking for Guidance on How the Corporate Transparency Act Will Affect Your Small Business?
Our team at Corporate Transparency Act Filing Services has extensive experience guiding clients through a variety of business and personal tax matters and is prepared to help you resolve your controversy with the IRS. Contact us today to schedule your obligation-free, confidential consultation with Arizona’s leading tax attorney firm.
Corporate Transparency Act Filing Services
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