Corporate Transparency Act | Is Your Business Required to Report its Ownership?
Published on by Lauren Huster in International Business
Effective January 1, 2024, new and existing corporate entities in the United States will be required to report their beneficial owners to the federal government. These rules are part of the Corporate Transparency Act (CTA) that was enacted on January 1, 2020. The reports will be filed with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
The goal is to provide transparency to the United States regarding who owns or controls companies. The lack of transparency leads to the inability to investigate entities being utilized for illegal purposes.
When will companies need to file?
Companies that have been created or registered to do business before January 1, 2024 will have from January 1, 2024 to January 1, 2025 to file its initial beneficial ownership information.
Companies that are created or registered to do business on or after January 1, 2024 will have 30 days to file its initial beneficial ownership information report.
After the initial registration, companies will have 30 days to report changes.
Who will need to file?
Domestic reporting companies and foreign reporting companies will be required to report their beneficial ownership unless they qualify for an exemption.
A domestic reporting company is defined as:
- A corporation,
- A limited liability company, OR;
- Any other entity created by filing of a document with a secretary or state or any similar office under law of a state or Indian tribe.
A foreign reporting company is defined as:
- A corporation, limited liability company, or other entity formed under the law of a foreign county, AND;
- Registered to do business in any US state or in any tribal jurisdiction.
What are some exemptions from filing?
- U.S. governmental authority,
- Certain types of banks,
- Certain types of tax-exempt entities,
- Entities assisting certain types of tax-exempt entities,
- Large operating companies with at least 20 full-time employees, more than $5,000,000 in gross receipts or sales including the receipts or sales of other entities owned by the entity and through which the entity operates, and an operating presence at a physical office within the United States,
- The subsidiaries of certain exempt entities,
- Certain types of inactive entities that were in existence on or before the date the Corporate Transparency Act was enacted, OR;
- Other exemptions specifically listed by the CTA.
What are some examples?
- Two sister companies that both have 25 employees, both have $3,000,000 of gross receipts and both operate in the United States. Neither company will need to file under the CTA as they would be exempt under the large operating company rules.
- Two sister companies in the US where one has 25 employees and one has one employee, both have $3,000,000 of gross receipts, and both operate in the United States. The company with only one employee will need to file under the CTA, but the other company with 25 employees would be exempt under the large operating company rules.
What type of information will be required?
For each individual, who is a beneficial owner or a company applicant, a reporting company will have to report:
- The individual’s name, date of birth, and address,
- A unique identifying number from an acceptable identification document, AND;
- The name of the state or jurisdiction that issued the identification document.
For a beneficial owner, the address must be a residential street address.
A copy of the identification document must be submitted to FinCEN.
What are the next steps?
The FinCEN is currently working on the information technology system that will be utilized to gather and store the information. Additional guidance will be forthcoming. Companies and owners should have this on their radar for 2024.
Barnes Dennig’s tax team will provide updates on this new requirement as the guidance evolves. We work with middle-market companies and their shareholders to build a brighter future. If you have questions about the CTA, please contact us here for a free consultation. We’re here to help.
