18. What You Need to Know About the Corporate Transparency Act (CTA)

Do you own or advise a corporation, limited liability company (LLC), limited partnership, limited liability partnership, limited liability limited partnership, or business trust? If so, be alert. There’s a new federal filing requirement coming.

The Corporate Transparency Act is Coming - what is it?

Back in 2021, Congress passed a new law called the Corporate Transparency Act (CTA) that requires corporations, LLCs, and other business entities to provide information about their owners to the Department of the Treasury as part of a government crackdown on corruption, money laundering, terrorist financing, tax fraud, and other illicit activity. It targets the use of anonymous shell companies that facilitate the flow and sheltering of illicit money in the United States.

What do I have to do now?

Businesses subject to the law will have to file a “beneficial owner report” with FinCEN, including each beneficial owner’s full legal name, date of birth, and residential street address, as well as an identifying number from a legal document such as a driver’s license or passport. FinCEN will include the information in a database for use by law enforcement, national security and intelligence agencies, and federal regulators that enforce anti-money-laundering laws. The database will not be publicly accessible.

Top 4 Things to Know

1. This requirement will go into effect beginning in 2024, and there are hefty fines for failing to report. As soon as it goes into effect, new corporations, LLCs, and other entities will have to comply with the filing requirement within 14 days of being formed, and existing entities will have one year to comply.

2. Millions of small businesses are affected. The reporting requirements will apply to almost every small business that is not a sole proprietorship or general partnership, including corporations, LLCs, limited liability partnerships, limited liability limited partnerships, business trusts, and most limited partnerships—over 30 million in all.
Larger companies with over 20 full-time employees and $5 million in gross receipts are exempt.

3. There will be many beneficial owners. The proposed regulations make it clear that a company can have multiple beneficial owners, and it may not always be easy to identify them all. There are two broad categories of beneficial owners:

- any individual who owns 25 percent or more of the company, and
- any individual who, directly or indirectly, exercises substantial control over the company.

4. Law and accounting firms are not exempt. Neither the CTA nor the proposed regulations contain any exemption for legal or accounting firms, except for the relatively few public accounting firms registered under Section 102 of the Sarbanes-Oxley Act of 2002. Thus, any law or accounting firm that is a professional corporation or an LLC will have to file a beneficial owner report unless it has more than 20 employees and $5 million in annual income.

Feel free to reach out if you have any questions or need clarification for yourself or your clients: https://www.strohmeyerlaw.com/houston-professional-advisors/

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