Why You Need to Know About the Corporate Transparency Act

By J.R. Robinson, Founder/Financial Planner (November 2024)

To Whom Does the CTA Apply?

If you have a 25% or more ownership interest in an LLC, S-Corp, C-Corp, or any other non-person entity with its own tax ID #, you need to know about the Corporate Transparency Act. The filing deadline is 12-31-2024. 

NOTE:  FPH has many clients who own rental property in LLCs. YES, YOU ARE REQUIRED TO FILE TOO!  READ:   Do Rental Property Owners Need to File a Beneficial Ownership Information Report for Their LLC?

Do I Have Your Attention Now? - What Happens If You Do Not File

 Failure to comply with the CTA's reporting requirements can result in severe penalties, including:

- Civil penalties of up to $591 per day

- Criminal penalties of up to $10,000

- Imprisonment for up to two years[1]

The Purpose of the CTA

The Corporate Transparency Act (CTA), which went into effect on January 1, 2024, is a significant piece of legislation aimed at enhancing corporate transparency and combating illicit financial activities in the United States[1][2]. This act requires certain businesses to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury[3].

The CTA was enacted to address critical issues related to money laundering, tax evasion, fraud, terrorist financing, and other financial crimes[2]. By requiring companies to report beneficial ownership information, the act aims to:

1. Prevent individuals with malicious intent from hiding behind corporate structures

2. Promote accountability and ethical business practices

3. Strengthen national security and economic integrity

4. Enhance due diligence processes

Exemptions from Filing

Although the CTA provides 23 exemptions for certain categories of entities, most of them do not apply to FPH clients who own LLCs, S-corps, or C-corps[3]. Some notable exemptions include:

- Public companies

- Large operating companies*

- Investment companies and advisers

- Subsidiaries of certain exempt entities

- Tax-exempt organizations

* To qualify for the large operating company exemption, an entity must:

1. Employ more than 20 full-time employees in the United States

2. Maintain an operating presence at a physical office in the United States

3. Have filed a federal income tax or information return for the previous year demonstrating more than $5 million in gross receipts or sales from U.S. sources.[5]

What You Need to Provide – “Beneficial Ownership Information” (BOI)

Reporting companies must submit a Beneficial Ownership Information (BOI) Report to FinCEN, which includes:

1. Company Information:

  - Legal name and any trade names

  - Current U.S. address

  - Jurisdiction of formation or registration

   - Taxpayer Identification Number

2. Beneficial Owner Information:**

  - Name

  - Date of birth

  - Address

  - Unique identifying number (e.g., passport or driver's license number)

   - Image of the identification document

**A beneficial owner is defined as an individual who either:

  - Owns 25% or more of the company

   - Exercises substantial control over the company[1][3]

It's important to note that companies are required to update their BOI Reports within 30 days of any changes to the reported information[1].

Where to File

To file a BOI Report, companies must use FinCEN's online filing system. The official FinCEN BOI E-Filing website can be accessed at: 

https://boiefiling.fincen.gov/

My Two Cents – Great in Theory

In theory, the Corporate Transparency Act represents a significant step towards greater corporate accountability and transparency in the United States. While it imposes new reporting obligations on many businesses, its implementation is expected to play a crucial role in combating financial crimes and promoting ethical business practices.

In reality, my guess is that implementation will turn out to be a bureaucratic nightmare, and enforcement for non-compliance will be untenable.   In my grassroots experience, most Americans are oblivious to the CTA, even though there is just one month left to file.  Some CPA firms are reaching out to their clients to raise awareness and assist with filing, but I bet there will be millions of people who do not comply simply out of lack of knowledge of the law’s existence and/or confusion over how to comply.  

Will the Feds really be able to take enforcement action?  Will unwitting consumers be able to pay the steep penalties?  I don’t know, but I think it is best to follow the rules.

As the CTA's implementation continues to evolve, it's crucial for business owners and stakeholders to stay informed about their reporting obligations and any updates to the legislation. If you are unsure whether you need to file, contact your CPA for guidance. 

For additional information on the Corporate Transparency Act and its implications, you may find these articles helpful:

Corporate Transparency Act: What Business Owners Need to Know  (Kiplinger)

What Is The Corporate Transparency Act?  (Forbes)

New Disclosure Rules for Shell Companies Aim to Crack Down on Illicit Finance (NY Times)

New Beneficial Ownership Reporting Rules Take Effect (Wall St. Journal)

John H. Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. He is also a co-founder of fintech software maker Nest Egg Guru and the new personal finance website NestEggPF.com.

Citations:

[1] https://www.uschamber.com/co/start/strategy/small-business-corporate-transparency-act

[2] https://www.diligent.com/resources/blog/CTA-corporate-transparency-act

[3] https://www.nixonpeabody.com/insights/alerts/2024/05/14/the-corporate-transparency-act-what-you-need-to-know

[4] https://www.iaca.org/about-iaca/corporate-transparency-act/

[5] https://www.sidley.com/en/insights/newsupdates/2024/09/update-on-the-corporate-transparency-act-navigating-a-potpourri-of-possible-pitfalls

[6] https://www.skadden.com/insights/publications/2024/01/the-corporate-transparency-act

[7] https://www.michigan.gov/consumerprotection/protect-yourself/consumer-alerts/business/the-corporate-transparency-act-and-your-business

[8] https://www.fincen.gov/sites/default/files/shared/Corporate_Transparency_Act.pdf