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Corporate Transparency Act 101

By Nehemiah Jefferson, Esq., LL.M.

The Corporate Transparency Act (“CTA”) is getting a lot of attention in the accounting, tax, financial planning and legal industry, and rightfully so. This article provides some basic information and required action about the CTA.

What is the Corporate Transparency Act?  The CTA created a reporting requirement for certain companies doing business in the United States to the Financial Crimes Enforcement Network (FinCen).  The requirement is for a beneficial ownership information (“BOI”) report.  This report, a one-time submission, captures information about individuals who own or control a company that is required to submit the report.

What is the purpose of the CTA?  The CTA has a goal to prevent and combat money laundering, terrorist financing, and tax fraud.

What is a reporting company under the CTA? A reporting company under the CTA would include most corporations, LLC’s, and other entities registered to do business in the United States.  A reporting company may be domestic or foreign. Filing a registration document with a secretary of state, likely creates the reporting company. There are, however, a number of exemptions such as a bank, insurance company, or tax-exempt entity. Additionally, a company may qualify for a “large operating company” exemption.

What information is required for the CTA report? The information required of the beneficial owner (a person, exercising substantial control, or owns at least 25%) includes name, date of birth, address, and driver license or passport number.  Information required of the company includes its name and address.  There are also exceptions to the beneficial owner definition.

What are the deadlines for the CTA BOI? If your business operated before January 1, 2024, then you must file the BOI by January 1, 2025.  On the other hand, if your company began operating in 2024, then you have 90 days after company registration to file. If you are a company that begins operating in 2025, then you only have 30 days after company registration with the secretary of state to file the report.

What are the penalties for failing to report under the CTA? Indeed, this is likely the most asked question.  It is important to know that there are both civil and criminal penalties for willfully failing to report.  Those penalties include $500 for each day of the violation. Criminal penalties may result in prison for up to two years and a fine of up to $10,000.

Wasn’t the CTA recently ruled unconstitutional? Yes, the United States District Court for the Northern District of Alabama ruled the CTA unconstitutional in the matter of The National Small Business Association v. Yellen.  However, the ruling only applies to the plaintiffs in the case.  Therefore, other companies must still comply with CTA.

Where can I get more information about the CTA? You may contact our firm by visiting www.esqtaxfirm.com or the government website at www.fincen.gov/boi.

Of course, this article is not all encompassing when it comes to the CTA. Much of the technical details were left out such as details related to what is not a reporting company, exemptions, substantial control, ownership, interest, and much more. As with any legal matter, you should consult an Attorney. This article is for educational purposes only, is not legal advice, is not a substitute for consulting legal counsel, and does not create an attorney-client relationship.

Nehemiah Jefferson, Esq., LL.M., is Principal of Esquire Tax Firm PLLC. The firm practice areas include Civil and Criminal Tax Representation, Estate Planning, Probate, Guardianship, and Business Planning. He earned his Bachelor’s degree from The Florida State University, his Juris Doctor from John Marshall Law School (Atlanta), and LL.M. in Taxation from the University of Alabama. Attorney Jefferson is licensed to practice law in the State of Florida, Texas, The District of Columbia, and is a member of the United States Tax Court Bar. He may be reached at www.esqtaxfirm.com.