Overview
The Corporate Transparency Act (CTA) takes effect on January 1, 2024, introducing significant reporting requirements for many privately held entities, known as Reporting Companies. The CTA aims to enhance transparency to combat tax fraud, money laundering, and other illegal activities. Reporting Companies must submit ownership information to the Financial Crimes Enforcement Network (FinCEN), a part of the U.S. Treasury.
What is a Reporting Company?
Reporting Companies include any corporation, limited liability company, or similar entity formed by filing documents with the secretary of state or a similar office in any U.S. state or territory, or a foreign entity registered to do business in the U.S. Most entities are subject to CTA reporting, except for those falling into one of the 23 specific exemptions, such as:
– Securities reporting issuer
– Governmental authority
– Bank
– Credit union
– Depository institution holding company
– Money services business
– Broker or dealer in securities
– Securities exchange or clearing agency
– Other Securities Exchange Act of 1934 registered entity
– Investment company or investment adviser
– Venture capital fund adviser
– Insurance company
– State-licensed insurance producer
– Commodity Exchange Act registered entity
– Accounting firm
– Public utility
– Financial market utility
– Pooled investment vehicle
– Tax-exempt entity
– Entity assisting a tax-exempt entity
– Large operating company
– Subsidiary of certain exempt entities
– Inactive entity
(See the FinCEN Beneficial Ownership Information Reporting FAQ for more details on exemptions.)
Who is a Beneficial Owner?
Reporting Companies must report information about beneficial owners. A beneficial owner is anyone who directly or indirectly (1) owns at least 25% of the ownership interests of the Reporting Company or (2) has substantial control over the Reporting Company. Substantial control can include being a senior officer, having authority to appoint or remove officers or directors, or being a key decision-maker for the company.
What Information Must Be Provided?
A Reporting Company must report its legal name, any trade names, principal place of business, formation or registration jurisdiction, and tax identification number. For each beneficial owner, the company must report the name, date of birth, residential address, and an identifying number from an acceptable document such as a U.S. driver’s license or passport.
Are Trusts Considered Reporting Companies or Beneficial Owners?
A trust may be a beneficial owner if it meets the 25% ownership or substantial control criteria. If so, the following individuals may also be considered beneficial owners:
– Trustees with the ability to manage trust assets
– Grantors of a revocable trust
– Grantors of a grantor trust with the right to substitute assets
– Beneficiaries who are the sole recipients of income and principal distributions
– Beneficiaries with a general power of appointment over the trust assets
When Must Beneficial Ownership Be Reported?
Reporting Companies formed in 2024 must file beneficial ownership information with FinCEN within 90 days. Companies existing before 2024 have until December 31, 2024, to file. Reporting is done online through the Beneficial Ownership Secure System (BOSS) on FinCEN’s website.
(See the FinCEN Beneficial Ownership Report Filing Dates for more information.)
What About Changes in Ownership or Inaccurate Reporting?
Any changes to beneficial ownership must be reported to FinCEN within 30 days. Corrections to previously filed reports must also be made within 30 days of discovering an inaccuracy.
Who Can Access Beneficial Ownership Information?
FinCEN will keep beneficial ownership information in a secure, nonpublic database. Federal, state, local, and tribal officials, as well as certain foreign officials through a U.S. Federal government agency, can access this information for national security, intelligence, and law enforcement purposes.
Penalties for Non-Compliance
Failure to report beneficial ownership information can result in civil penalties of up to $591 for each late day. Criminal penalties can include imprisonment for up to two years and/or fines up to $10,000. Both individuals and corporate entities can be liable for willful violations.
How KB CPA Services Can Assist
While some clients may manage reporting on their own, those with numerous entities may face administrative challenges. We can help by:
– Answering your questions during the reporting process
– Reviewing your reports before submission
– Assisting in preparing reports for filing
We will not file reports for you unless agreed upon in an engagement letter or other written agreement.
