Article | January 26, 2024

by Horty & Horty, P.A.

The Corporate Transparency Act (CTA), enacted as part of the National Defense Act for Fiscal Year 2021, is set to create a significant shift in financial transparency regulations. Starting from January 1, 2024, this groundbreaking legislation will mandate a substantial number of businesses to disclose Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN).

The primary aim of the CTA is to augment U.S. law enforcement’s efforts against illicit financial activities such as money laundering and terrorism financing. By requiring companies to provide key information about the individuals who exert substantial control or own a significant portion of the company, the CTA aims to peel back the layers of anonymity often associated with shell companies.

Entities Subject to the CTA

The CTA applies to both domestic and foreign entities, including corporations, limited liability companies (LLCs), or similar entities formed or registered to conduct business in the U.S. However, certain companies, including publicly traded companies, banks, credit unions, and public accounting firms, are exempt from the reporting requirement. Moreover, “large operating entities” having more than 20 employees, a physical presence in the U.S., and reporting over $5 million in gross receipts or sales in the prior year’s tax return are also exempt.

Defining Beneficial Ownership

The CTA defines a beneficial owner as an individual who either directly or indirectly exercises substantial control over a reporting company or owns or controls at least 25% of the company’s ownership interests. This includes anyone who directs, determines, or exercises substantial influence over significant decisions of the company.

Reporting Requirements

Commencing from January 1, 2024, existing entities, both domestic and foreign, will be required to file their initial report with FinCEN by January 1, 2025. Meanwhile, new entities created or registered after December 31, 2023, will have to file within 90 days (extended by FinCEN from 30 days).

The report should include the company’s full legal name, any trade names or doing business as (DBA) names, business address, jurisdiction of formation, and the IRS Taxpayer Identification Number (TIN). Additionally, information about each beneficial owner and company applicant, including name, birthdate, address, and a unique identifying number from an acceptable identification document, should be included in the report.

Non-compliance with the CTA can lead to severe penalties, including civil penalties up to $500 per day that a violation continues and criminal penalties, including a $10,000 fine and/or up to two years of imprisonment.

The CTA represents a significant step towards increased transparency in financial dealings, empowering law enforcement agencies with vital information to combat illegal financial activities. It’s essential for entities to familiarize themselves with these new regulations and ensure compliance to avoid penalties. As the FinCEN gears up to start accepting reports from January 1, 2024, companies should start preparing now to meet their new reporting obligations. With the unveiling of the CTA, the era of anonymous shell companies may be drawing to a close, ushering in a new age of transparency and accountability in the financial world.

The above information is intended to provide general information on the CTA and does not include all information necessary to evaluate your compliance requirements.

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