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A Massive New FinCen Filing Requirement Called the Corporate Transparency Act is Coming

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    In 2021, the Corporate Transparency Act (CTA) was passed. It requires corporations, LLCs, and other business entities to report information about their owners to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury that serves to punish criminals and criminal networks that engage in money laundering and other financial crimes.

    The CTA did not immediately take effect. Rather, FinCEN was afforded time to construct regulations and provide corporations with notice about the law. FinCEN has now issued its proposed regulations, and they contain multiple unpleasant surprises for business.

    If you are concerned that you have failed to properly report information about your business to FinCEN, you can contact the Tax Law Offices of David W. Klasing for support. Our Dual-Licensed Tax Lawyers & CPAs can assess your case and explain how you should proceed. Call (800) 681-1295 or click here to schedule a reduced rate initial consultation.

    What is the Purpose of the Corporate Transparency Act?

    The Corporate Transparency Act (CTA) is part of the government’s effort to fight tax fraud, money laundering, corruption, terrorist financing, and other illegal activity. The act targets the utilization of shell companies that help hide and facilitate the flow of illicit money.

    Most people who engage in money laundering and other illicit activities do not do so using their own names. Rather, these illegal actions are committed through corporations, LLCs, and other similar business entities. In the past, law enforcement has had difficulty identifying the individuals behind these entities.

    The CTA now requires that these entities file ownership information reports with the Financial Crimes Enforcement Network (FinCEN). The reported information will be stored in private databases with access restricted mainly to government law enforcement agencies. Accordingly, these agencies can combat financial crimes perpetrated through anonymous corporations, LLC’s and other similar business entities more effectively.

    What Types of Businesses Must Comply with the Corporate Transparency Act?

    The Corporate Transparency Act (CTA) focuses mainly on smaller business entities because they are more likely to act as shell companies. There are various exemptions for larger businesses. For example, any of the following businesses will be exempt:

  • Publicly traded corporations that are heavily regulated by the federal government
  • Businesses with more than 20 full-time employees (employees must work at least 30 hours per week or 130 hours per month)
  • Businesses with a physical presence at a business office within the U.S.
  • Businesses that have filed federal tax returns the prior year showing over $5 million in gross sales or receipts
  • Penalties for violating the CTA can vary. Some violations may result in a $500 per day penalty and up to two years of jail time. If you are worried that your business has not complied with CTA requirements, you can call our law firm for support. Our Dual-Licensed Tax Lawyers & CPAs can fight to reduce or remove any penalty you may face.

    The Corporate Transparency Act is Not Just for Corporations and LLCs

    The reporting requirements outlined by the Corporate Transparency Act (CTA) apply to LLCs and corporations. However, these requirements also extend to any other non-exempt entities formed by filing documents with state secretaries or similar agencies. According to the Financial Crimes Enforcement Network (FinCEN), this includes most limited partnerships, business trusts, and limited liability limited partnerships because such entitles are typically formed through filings with secretaries of state.

    The Corporate Transparency Act Will Take Effect in 2024

    It has been determined that the Corporate Transparency Act (CTA) will take effect on January 1, 2024. Once the regulations have taken effect, new companies will have to file their owner reports within 14 days of being created. For existing companies, owners must file their reports within one year of the regulations taking effect. You can reach out to our Dual-Licensed Tax Lawyers & CPAs for help filing your ownership report in accordance with the CTA.

    Beneficial Owners Are Broadly Defined Under the Corporate Transparency Act

    Under the Corporate Transparency Act (CTA), an affected business must include “beneficial owner” information on its report. This information should include the beneficial owner’s name, date of birth, and residential street address. There are two broad categories of beneficial owners. First, any individual who owns over 25% of a company will constitute a beneficial owner. Second, any individual who directly or indirectly exercises substantial control over a company is considered a beneficial owner.

    The CTA does not specifically define what constitutes substantial control of an entity. Generally, the following individuals are considered to exercise substantial control:

  • Senior officers of a company
  • Individuals who have the power to appoint or remove senior officers or board directors
  • Individuals who have significant influence over important matters affecting the reporting company, including major investments and expenditures
  • It can be difficult to know what to include in your ownership report. Accordingly, if you have encountered issues regarding your reporting requirements under the CTA, you should seek help from our Dual-Licensed Tax Lawyers & CPAs as soon as possible.

    Updated Beneficial Owner Reports Have to Be Filed Quickly

    Under the Corporate Transparency Act (CTA), changes to beneficial owner information must be reported to the Financial Crimes Enforcement Network (FinCEN) within 30 days. For example, if a beneficial owner changes their residential address, FinCEN must be notified within 30 days of the move.

    FinCEN suggests that over 11.4 million updated reports will have to be submitted each year. Fortunately, you can call our Dual-Licensed Tax Lawyers & CPAs for help filing your updated report.

    Beneficial Owner Reports Must Also Identify Company Applicants

    Beneficial owner reports must also identify “company applicants.” Company applicants are those who filed the documents creating specific entities. This would seem to include attorneys who filed articles of formation to create LLCs or articles of incorporation to establish new corporations.

    If You Have Encountered an Issue Regarding Your Reporting Requirements Under the Corporate Transparency Act, Our Attorneys Can Help

    If you are concerned that you have failed to properly report information about your business to FinCEN, seek help from our Dual-Licensed Tax Lawyers & CPAs. Contact the Tax Law Offices of David W. Klasing by dialing (800) 681-1295.

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