Here is what you need to know to abide by the CTA’s new regulations
As of January 1st, 2024, domestic and foreign businesses must report their company applicants and beneficial owners. While the timelines vary, some entities must submit their report within 90 days of the act taking effect.
Overview of Corporate Transparency Act (CTA)
The CTA, enacted Jan. 1, 2021, sets out to curb money laundering and other fraudulent efforts by forcing entities that were formed in or conduct business in the United States to report additional pieces of information. Non-exempt companies must file an initial report with the Financial Crimes Enforcement Network and must submit new ones if the previously reported information changes.
Who must report?
The two umbrella types of entities required to report are domestic reporting entities and foreign reporting entities. The former encompasses corporations, limited liability companies, and any other entity formed by submitting documentation to the secretary of state. The latter refers to any type of entity formed under the law of a foreign country that is lawfully registered to do business in the United States, including but limited to corporations and limited liability companies.
Who is exempt?
The CTA holds space for 23 different exemptions, including tax exempt entities, non active entities, and large operating companies. To qualify as a large operating company, an entity must employ more than 20 full-time individuals in the U.S., posses a physical office presence in the U.S., and have filed a federal tax return of information return in the United States displaying an excess of $5,000,000 in sales or gross receipts.
What information is reported?
The reports in which entities submit must contain a list of every beneficial owner and company applicant. A beneficial owner is an individual who exercises significant control over the entity or either directly or indirectly controls 25% or more of the entity. A company applicant is the individual who registers the entity in question through the filing of documents with the U.S. government.
Both beneficial owners and company applicants must disclose their legal first and last names, date of birth, current residential address, unique ID such as from a passport or driver’s license, and a photocopy of the form of identification used.
In addition to this list of beneficial owners and company applicants, companies must also disclose its legal name, any DBA or trade names, the address of the company, federal taxpayer ID, and the state or jurisdiction it was formed within.
Timeline for compliance
The timeframe in which an entity must submit their report depends on when it was formed. Those formed before Jan. 1 2024 must file their initial report by Jan. 1, 2025. Those formed in 2024 have up to 90 days to comply with CTA. The reports for entities formed in 2025 are due within 30 calendar days of its formation.
Penalties for non-compliance
It is unlawful for any individual to knowingly provide false information in connection with this report or to willfully neglect the submission of this report. Penalties include $500 a day up to $10,000 and up to two years imprisonment for the above stated behavior.
Next steps
Not sure if your company is exempt from reporting? Still unclear as to what information needs to be included on the report? Contact us today at Hechtman, your trusted tax and advisory service partners. We can walk you through each step, from the creation of the report to its final submission.