By Shane Cummings, CFP®, AIF®, Wealth Advisor & Director of Technology/Cybersecurity
The U.S. Congress passed the Corporate Transparency Act (CTA) in 2021, but the law did not go into effect until 2024. As we approach year-end, it’s important to look at the new filing requirements and timelines, as they may impact up to 32 million Americans (Source: FinCEN.gov).
Many of the clients we serve in their net worth by owning or running businesses, both large and small. If you are the owner of a small business or influence a business entity through substantial ownership or control, it is recommended that you connect with your trusted advisors to see how the CTA may affect you. Read on to learn how you may be impacted.
What is the Corporate Transparency ACT (CTA)?
In short, the CTA was passed to combat money laundering, terrorism, tax evasion, and other financial crimes. The goal is to un-mask individuals behind small companies such as limited liability companies, limited partnerships, and other entity types that have been more anonymous in the past. This will make it easier for authorities to track potential criminal acts.
Not every company is required to report. However, the burden of CTA reporting will fall mostly on smaller business entities. The CTA requires any “reporting company” to file certain beneficial owner reports with the government. A reporting company may be any type of company formed by filing paperwork with a Secretary of State (such as articles of incorporation).
A company does not need to report if it falls under one of the exceptions named by the Act. Some major exemptions include large companies, inactive entities, and banks – to name a few. The list of exemptions is too long to list here, but a list of the specific rules can be found on this website: corporatetransparencyact.org. There’s also a CTA “Quiz” that can help you determine whether your company needs to file: https://www.corporatetransparencyact.org/company-check-tool/.
When is the CTA filing deadline?
Existing business entities must comply with the reporting requirement by January 1, 2025 if the rule applies to them. Entities created on or after January 1, 2024 have 90 days from the date of formation to file. Starting in 2025, newly formed entities must report within 30 days.
Failure to comply with the reporting timeline can result in some substantial penalties. Civil penalties of $500 per day after the filing deadline could be assessed to the delinquent party. Additionally, the law may also allow for a criminal penalty of up to $10,000 and imprisonment of up to two years for failure to comply in some circumstances.
Given the potential risk, it’s better to be conservative and take this requirement seriously and file as needed, rather than waiting to see if the reporting deadline might be paused or delayed. There may also be penalties for providing false or fraudulent ownership information as part of the reporting process.
What is the CTA filing process?
The reporting company is required to file the reports. While a company may have multiple owners, it is the company itself that must file and not each individual owner. The reporting must include information on ‘beneficial owners’: anyone who exercises substantial control over a reporting company, or owns/controls at least 25% of the company’s ownership interests. This might also include trusts, which is why the reporting requirement can get fairly complicated. In some cases, the list of information required can also be fairly extensive and detailed, which is why involving the appropriate people in the reporting effort is important.
The Beneficial Ownership Information (BOI) report should be filed with FinCEN, the Financial Crimes Enforcement Network, which is a government bureau under the U.S. Treasury Department. The BOI report requires: 1) complete company details; 2) identifying information of beneficial owners; 3) specific data on company applicants; and 4) ID documents for each owner or company applicant.
There is also an alternative process where a beneficial owner or company applicant who has already obtained a FinCEN identifier may report directly – in lieu of providing the four required BOI information items named above. Under this arrangement, this person would then be responsible for keeping their information current with FinCEN individually. This might relieve the burden on the reporting company, as long as these individuals reporting changes themselves can do so reliably and in a timely fashion.
Which professionals should be involved in the CTA filing process?
Professionals with experience in CTA filings often include CPAs doing tax reporting for reporting companies – or attorneys involved in the formation of the business. They should be consulted first with any questions you may have. Financial advisors cannot handle many aspects of this process; our restrictions include unauthorized practice of law concerns.
There are far more nuances and rules associated with the CTA not discussed in this article.
Don’t delay – stay compliant with the Corporate Transparency Act
Regardless of where you turn for guidance, it’s important that, as a business owner, you’re aware of the upcoming CTA filing deadlines and working to understand if the CTA impacts you. And of course, if the answer is yes, that you get in compliance as soon as possible.
Here at HH, we will assist you where possible, even if it’s just a matter of pointing you in the right direction for more information. Questions? Please get in touch with your advisory team.
Disclosure:
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant. All opinions or views reflect the judgment of the author as of the publication date and are subject to change without notice. All information presented herein is considered to be accurate at the time of writing, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
