The Corporate Transparency Act (CTA), ratified into law on January 1, 2021, advances the agenda of deterring criminals from infusing their illicit funds into the U.S. financial system. For most eligible businesses, the deadline to comply is January 1, 2025.
WHAT IS THE CORPORATE TRANSPARENCY ACT’S PURPOSE?
Congress estimates that more than two million corporations and limited liability companies are formed in this country every year. That number opens up a lot of potential avenues for criminals to put a clean public face on felonious activities like human trafficking, drug and arms dealing, and terrorist financing. The CTA’s purpose is to put names behind business faces and thereby make it harder for anyone to use their company to anonymously carry out criminal intentions.
WHO DOES THE CORPORATE TRANSPARENCY ACT AFFECT?
- Any entity that existed on January 1, 2024.
- This includes corporations, limited liability companies (LLCs), and other types of companies that are created by a filing with a Secretary of State (“SOS”) or equivalent official.
- The CTA also applies to non-U.S. companies that register to do business in the U.S. through a filing with a SOS or equivalent official.
- There are, however, a few exceptions:
- Large operating companies (see below)
- Securities issuers
- Banks
- Insurance companies and producers
- Brokers or dealers in securities
- Registered investment companies and advisers
- Venture capital fund advisers
- Accounting firms
- Tax exempt entities (or those assisting tax exempt entities)
- Special pooled investment funds
Large operating companies” refer to companies that:
- Employ more than 20 full-time employees in the U.S.
- Accrued more than five million dollars in gross receipts or sales, as demonstrated on their prior year’s federal income tax returns, AND
- Operate from a physical office in the U.S.
These corporate bodies are exempt because they’re already subject to federal and/or state regulation.
WHAT DO YOU NEED TO REPORT?
- Entity Specific Information
- Main U.S. Business Address
- Beneficial Owner Information (BOI)
- Jurisdiction (State/Foreign Country) of Formation and Registration
- Full Legal Name and Any DBAs/Alternate Names
- Tax ID Number
- Company Applicants (applicable only for entities formed on January 1, 2024)
WHAT ARE THE PENALTIES FOR NOT COMPLYING?
- Civil Penalties – Up to $500 per day that a violation is not remedied
- Criminal Fine – Up to $10,000
- Imprisonment – Up to 2 years
WHAT ARE NEXT STEPS?
Consulting with an attorney regarding the Corporate Transparency Act is in your best interest.
Since the Corporate Transparency Act is not a tax-related matter or part of the tax code, it falls outside the scope of our client engagement and the services we provide. Attorneys possess specific expertise in this area and are best suited to assist you with the compliance process. Please reach out to your tax professional if you have any questions or need a referral for legal counsel.
Source: Corporate Transparency Act.org
