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Are You a Business Owner or Have an LLC?

Written by Brian M. Chustz, JD, AAMS® on August 14, 2024

What You Should Know about the Corporate Transparency Act

Subject to limited exemptions, if you own nearly any business entity in the U.S. you must file a disclosure of ownership with the U.S. Government before January 1, 2025, or be subjected to up to a $500 per day penalty.

Do we have your attention now? 

Overview

This article summarizes the basics of the Corporate Transparency Act (CTA), providing history, deadlines, and filing options. We have observed that many are unaware of this new law – and its potential fines so we feel it is important to bring it to your attention. This article is intended to raise awareness – not provide legal advice. Please consult your attorney and tax professional for specific guidance in filing requirements.  

The CTA, effective January 1, 2024, requires U.S. “reporting companies” to disclose information about their beneficial owners to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Reporting Companies

Reporting companies include both domestic and foreign entities. Domestic reporting companies are LLCs, corporations (C or S Corps), LLPs, or similar entities created by filing documents with a state secretary. Foreign reporting companies are entities formed under foreign laws that are registered to do business in the U.S.  (For example, even if you hold real estate in an LLC, you are responsible for reporting.)

Certain entities are exempt, such as banks, credit unions, SEC-reporting companies, insurance companies, and public accounting firms. For example, an entity is also exempt if all three of the following conditions are met:

  1. Employs more than 20 full-time U.S. employees,
  2. Filed a federal income tax return last year showing over $5 million in gross receipts or sales, AND
  3. Operates a physical office in the U.S.

Beneficial Owners

A beneficial owner is an individual who directly or indirectly:

  1. Exercises substantial control over the entity, OR
  2. Owns or controls at least 25% of the entity’s equity interests.

Substantial control includes serving as a senior officer, having authority over senior officers and the board, influencing significant company decisions, or any other substantial control over the company.

Beneficial owners do not include:

  • Minor children (if their parent/guardian’s information is reported),
  • Nominees, intermediaries, custodians, or agents,
  • Employees who are not senior officers,
  • Inheritors with only future interests,
  • Creditors unless they control or own 25% of the entity.

What Must Companies Report?

Reporting companies must provide:

  1. Full legal name;
  2. Trade names or d/b/a names;
  3. Entity address;
  4. Jurisdiction of formation or registration; and
  5. Federal taxpayer identification number.

For each beneficial owner, the company must provide:

  1. Full legal name;
  2. Birthdate;
  3. Home address;
  4. An identifying number from a driver’s license, passport, or other approved documents; and
  5. An image of the document containing the identifying number.

Alternatively, an individual can apply for a FinCEN identifier number for use in filings.

If the reporting company was formed on or after January 1, 2024, information about the company applicant (the person who files the formation documents) must also be provided.

When Must Companies Report?

Companies formed before January 1, 2024, must file their initial reports by January 1, 2025. Companies formed after January 1, 2024, must file their initial reports within 90 days of creation or registration.

No annual or quarterly filings are required, but companies must update their reports within 30 days of any changes or corrections.

Reports must be filed electronically through FinCEN’s secure system at https://boiefiling.fincen.gov/.

Companies can navigate the online system themselves or hire third-party providers to file reports.

Penalties for Violating the CTA

Violations of the CTA can result in civil penalties of up to $500 per day. Criminal penalties include imprisonment for up to two years and fines up to $10,000 for providing false information or failing to comply with reporting requirements.

Conclusion

As previously stated, our goal is to raise awareness of this law and its potential fines as we understand this could financially impact business owners both large and small. Consult your attorney and tax professional for more detail information and guidance on filing requirements. As always, if you have any questions, please reach out to a Waverly Advisor.

Important Disclosure: You should not assume that any information provided serves as the receipt of, or as a substitute for, personalized investment advice from Waverly Advisors, LLC (“Waverly”). This information should be used as a reference only and is not intended to provide tax or legal guidance. Talk to your Waverly advisor, or a professional advisor of your choosing, for guidance specific to your situation.

 

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