What You Need to Know About the Corporate Transparency Act (CTA)
In September 2022, the final rule implementing the Corporate Transparency Act (CTA) was put into effect by the Financial Crimes Enforcement Network (FinCEN). The rule puts into place a series of new requirements for millions of businesses around the United States to ensure they disclose the beneficial ownership of those companies. Here is what you need to know about the Corporate Transparency Act:
What is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act was originally passed in 2020, and instituted new requirements for corporations across the United States to file a report that discloses their beneficial ownership. Beneficial owners are defined in the act as someone who:
- (1) exercises substantial control over a corporation or limited liability company,
- (2) owns 25% or more of the interest in a corporation or limited liability company, or
- (3) receives substantial economic benefits from the assets of a corporation or limited liability company.
This includes anyone who owns a company through another financial instrument, such as a trust or security.
What Does the CTA Require?
The CTA requires all covered companies to file a Beneficial Ownership Information (BOI) Report with FinCEN. This includes every corporation, LLC, or any other entity that must file a legal document with a Secretary of State or other equivalent office, barring certain exemptions. Exempt companies include certain companies already covered by other reporting requirements, such as banks, credit unions, publicly traded companies, or securities traders, as well as tax-exempt entities (such as 501c3 charities), accounting firms, and public utilities.
Why Was the CTA Passed?
The CTA was passed to stop certain business practices that help to facilitate financial crimes involving corporations, LLCs, and other similar business organizations. Certain illicit actors will sometimes use complex corporate and LLC structures to conceal the proceeds of certain criminal activities, as well as hide where those funds go. This includes money laundering, corruption, fraud, embezzlement, terrorism funding, and other similar crimes.
How Can I Be Sure I Am in Compliance With the CTA?
Fortunately, the CTA does not fully go into effect until January 1, 2024. Until then, you can explore your potential legal exposure and determine whether you need to file a BOI Report. If you do, the tax advisers at KVLSM can help to ensure you are in compliance with the new regulations, so that you can focus on running your business rather than worrying about these new rules.
|
