Written by Alverta “Sandy” Steinwedel
With over twenty years in this business, I know it is important to watch over your shoulder for new regulations and requirements.
The Corporate Transparency Act is one of those non-tax regulations which the government passed and will be effective as of 1/1/24 for all business owners.
Let me provide some historical information about the requirement. In January 2021 Congress was concerned corporations, domestic and international, maybe participating in money laundering and other illicit activities. Therefore, Congress enacted the Corporate Transparency Act (CTA) as part of the Anti-Money Laundering Act of 2020. The purpose of the CTA is to combat corporations creating, “shell companies” for money laundering, tax evasion, terrorism, cybercrimes, and other questionable activities.
The CTA was scheduled to come in effect on 1/1/22, however, the US Treasury Department’s Financial Crimes Enforcement Network (FinCen) which is overseeing the development of the regulations and guidelines was delayed due to the inability to fully implement the program and the negative feedback from business owners. Sadly, on 1/1/24, the CTA will be a requirement for most companies, domestic and foreign. The reporting will be for a business entity and the individuals who have “substantial” control over it to provide the specific information.
If our business is an LLC or corporation, and this includes single member LLC’s, you will be required to complete the form by the end of 2024; however, if you start a new business in 2024, you must complete the report within 30 days of formation. The form, not currently available, will be posted on the Treasury Department’s Financial Crimes Enforcement website. Remember this is not the Internal Revenue Service.
Even though the reporting form is not available, here is the information which is required for the corporation/entity: Business name; Trade names or DBA’s; Physical Address; Jurisdiction of formation (ie, state); and Employer Identification Number.
On the individual side, the report requires information on the company applicant (this is the individual who filed the forms in the formation of the entity) as well as the beneficial owners.
What Is A Beneficial Owner?
This an individual who, directly or indirectly, through contract, arrangement, or relationship:
- Exercises “substantial control” over the entity
- Owns 25% or more of equity interest.
- Receives substantial economic benefits from the assets of the entity
- What is substantial control?
- He or she serves as a senior officer.
- Has authority over the appointment or removal of a senior officer.
- Has substantial control over important matters and decisions.
- Has another form of involvement that could be considered as “substantial control”
The CTA has 24 “exempt entities” – mostly larger companies and tax-exempt entities.
It is important to complete the required reporting information by 12/31/24, because the penalty is $500 per day. When you meet with your tax/accounting professional make sure to ask them about the reporting. There are NO extensions available. Important Note: if you form a new entity in 2024, it must be completed within 30 days of formation.
