Raven A. Herron & Company Tax Alert:
Corporate Transparency Act Filing Requirements Begin in 2024

In our 2023 Engagement Letter we discussed the new Beneficial Ownership Reporting requirements. Having acquired additional information about the act, we now aim to provide a more detailed explanation, ensuring that our clients are fully aware of the implications and changes associated with it.

Effective January 1, 2024, the Corporate Transparency Act (“CTA”, “Act”) was enacted as part of the National Defense Authorization Act. The CTA’s primary objective is to aid U.S. law enforcement agencies in combatting financial crimes, including money laundering, terrorism financing, and other illicit activity. The Act mandates certain entities to report company and beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”), which operates as a bureau of the U.S. Treasury Department. FinCEN will maintain the collected information in a database and under specific circumstances, may disclose it to U.S. federal regulatory agencies, as well as other federal, state, local or tribal agencies, and certain financial institutions.  

Both domestic and foreign entities classified as “reporting companies” must adhere to the Corporate Transparency Act (CTA). Reporting Companies include domestic corporations, limited partnerships, limited liability companies, and other business entities formed by filing documents with a secretary of state or a similar office under the laws of a U.S. State or Indian Tribe. Additionally, business entities organized under the laws of a foreign country that registered to do business in a U.S. state or tribal jurisdiction by filing documents with a secretary of state or other similar office are also considered reporting companies under the CTA.

While the Corporate Transparency Act (CTA) has a potentially wide-reaching scope, it incorporates various exceptions to the standard reporting obligations.  The CTA includes exemptions for 23 types of entities, many of which are already subject to regulation by governmental authorities.  Examples of exempt entities encompass, but are not restricted to publicly traded companies, inactive entities, accounting firms, banks, credit unions, security brokers and dealers, certain tax-exempt entities, insurance companies, public utilities, and governmental authorities.

The Act also exempts “large operating companies” that meet all the following requirements:

  1. Employ more than 20 full-time employees located in the United States,
  2. Have a physical office located within the United States, and
  3. Reported gross revenue of over $5 million on the prior-year federal income tax or information return.

Any entity not meeting exemption criteria is obligated to submit a report to FinCEN, providing details such as full legal name, any trade name or DBA name, business address, jurisdiction of its formation or registration, and taxpayer identification number. Additionally, the entity must also disclose each beneficial owner that either holds substantial control over the entity or owns or controls a minimum of 25% of its ownership interests. The required details for each beneficial owner includes an individual’s legal name, date of birth, residential address, and identifying number from an unexpired passport, driver’s license, or state identification document. Importantly, the last item must be accompanied by an image of the applicable document.

For companies in existence or registered before January 1, 2024, the obligation is to submit an initial report no later than January 1, 2025. In contrast, companies formed or registered on or after January 1, 2024, must file an annual report within 90 calendar days of their formation or registration date. In the event of any changes to the previously submitted information regarding the reporting company or a beneficial owner, an updated report must be filed within 30 calendar days after the date of this change. Notably, there is no annual reporting requirement. Failure to comply with the CTA reporting requirements may result in civil penalties of up to $10,000 and criminal sanctions of up to 2 years imprisonment.

Note that the CTA is a provision under Title 31 (Money and Finance) of the United States Code rather than Title 26 (Internal Revenue Code). Under applicable regulatory authority, accountants have been granted limited authority only to interpret tax law under Title 26. At this time, it is not clear whether accountants have the requisite authority to similarly interpret Title 31.   Accordingly, services regarding the CTA may constitute the “practice of law” and should be provided only by individuals or firms that are licensed to practice law under the applicable laws of a U.S. state.  

Therefore, Raven A Herron & Company, PC is unable to provide technical advice regarding the CTA or to prepare any reports required by the CTA. We highly recommend that you contact your legal counsel to discuss the CTA and any respective reporting obligations that you may have under the Act.  Although Raven A Herron & Company, PC is currently unable to provide advice and compliance services related to the CTA, we are available to provide certain tax and other information that may be used to assist your legal counsel, if necessary.

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