B.A. Harris Blog

Corporate Transparency Act: New Federal Law to Require Information Reporting for Most Small and Medium Size Businesses

There is a new law out, not yet brought to the public’s widespread attention, that will impact most businesses. The implementation rules are still being developed and we’ll keep you up to date as the forms are published. We expect for the law to become effective in 2022 and recommend that companies start gathering the data now to timely report when this happens. Here is what we know so far.

On January 1, 2021, Congress passed the Corporate Transparency Act (CTA). The CTA requires all entities formed in, or registered to do business in, the United States to report certain information about the beneficial owners and applicants to the Financial Crimes Enforcement Network (FinCen). Included within the Anti-Money Laundering Act of 2020, the purpose of the CTA is to deter entities from facilitating money laundering and other illegal activities. Under the new rule, entities created or registered before the effective date of the final regulation will need to file their initial reports within one year. Entities created or registered after the effective date must file within 14 days.

Applicability

Any entity that is created by filing with a Secretary of State or similar office, is required to file. This includes limited liability partnerships, limited liability limited partnerships, business trusts, most limited partnerships, corporations, and LLCs.

Exemptions

The CTA specifically exempts several types of entities. These include entities that are already subject to some governmental oversight, certain nonprofits, and publicly traded companies. Exemptions also apply to entities that meet all the following conditions:

  • Have over $5M in annual gross receipts/sales
  • Operate physical presence in the United States
  • Employ at least 20 full-time U.S. employees

Beneficial Owners and Applicants

Under the CTA, a beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting entity, or controls at least 25% of the ownership interest in the reporting entity. An applicant is the individual who files the document that forms the entity or who first registers the entity to do business in the United States.

Reporting Requirements

The proposed rule will require applicable entities to identify itself and report the following about each beneficial owner and applicant:

  • Full legal name
  • Date of birth
  • Current residential or business street address
  • Unique identifying number from an acceptable identification document (Social Security Number or Federal Identification Number)

Non-compliance penalties

Failure to comply with the CTA can result in civil and criminal penalties. This includes up to $500 per day that the violation continues, fines of up to $10,000 and possible imprisonment of up to two years.

B.A. Harris will continue to monitor the CTA and rulemaking process. Please let us know when you form an entity or have any questions regarding this matter.

Chelsey Steinberg

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