The Corporate Transparency Act (CTA), enacted in 2021, was passed to enhance transparency in entity structures and ownership to combat money laundering, tax fraud, and other illicit activities. It is designed to capture more information about the ownership of specific entities operating in or accessing the U.S. market.
The law was largely ignored by accounting professionals at first. However, the effective date of the Corporate Transparency Act is fast approaching on January 1, 2024, and people are starting to panic.
Companies are looking for more information on the Corporate Transparency Act, how it affects their operations, and what the details of the reporting requirements are. This presents a unique opportunity for accounting firms and tax accounting professionals to enhance their revenue streams by diversifying their service offerings.
Who does the Corporate Transparency Act affect?
According to a recent Small Business Administration report, 27,104,006 small businesses were termed “non-employer firms” and had no employees. The Corporate Transparency Act is designed to improve business activity transparency through the reporting of Beneficial Ownership Information (BOI) and is particularly targeted to these smaller businesses.
Who needs to file?
Reporting companies are identified as either domestic or foreign:
Domestic reporting companies are corporations, LLPs, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.
Foreign reporting companies are a corporation, LLCs, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office. Sole-proprietorships that don’t use a single-member LLC are not considered a reporting company.
Reporting companies typically include:
Limited liability partnerships
Limited liability limited partnerships
Business trusts
Most limited partnerships, where entities are generally created by a filing with a secretary of state or similar office.
Exemptions include securities issuers, domestic governmental authorities, banks, and many more that don’t fall into the above categories.
Beneficial owners
A beneficial owner can fall into one of two categories defined as any individual who, directly or indirectly, either:
Exercises substantial control over a reporting company, or
Owns or controls at least 25% of the ownership interests of a reporting company.
Having two categories is designed to close any loopholes and ensure all owners are identified. The key difference is that beneficial ownership is categorized as those with ownership interests reflected through capital and profit interests in the company.
The beneficial owners must report to FinCEN their name, date of birth, address, and unique identifier number from a recognized issuing jurisdiction and a photo of that document. If an individual decides to file their information to FinCEN directly, they may be issued a “FinCEN identifier” which can be provided on a BOI report instead of the required information.