The Corporate Transparency Act (CTA) is a U.S. law countering financial crimes by mandating companies to disclose beneficial ownership information to FinCEN. It aims to enhance transparency and aid law enforcement in preventing money laundering and similar illicit activities.
The CTA targets business corporations, limited liability companies (LLCs), and other similar entities. By focusing on these types of companies, the Act aims to provide law enforcement agencies with the tools they need to identify and prevent financial wrongdoing. If you are worried that your business may have violated certain conditions of the CTA, you must seek legal guidance as soon as possible.
Get help from our Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing today at (800) 681-1295.
Types of Companies Impacted by the Corporate Transparency Act
The CTA is a U.S. federal law aimed at enhancing transparency and combating financial crimes, such as money laundering and terrorist financing. It does so by mandating the disclosure of beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The act primarily targets the following types of companies:
Business Corporations
The Corporate Transparency Act applies to business corporations formed under state law. These corporations are typically structured with shareholders, officers, and directors. The CTA mandates that certain information about the beneficial ownership of these corporations be reported to the Financial Crimes Enforcement Network (FinCEN), which is a bureau of the U.S. Department of the Treasury. Fortunately, our Dual-Licensed Tax Lawyers & CPAs can help corporations adhere to these potentially complex requirements.
Limited Liability Companies (LLCs)
Limited Liability Companies are widely used for their flexibility and pass-through taxation. The CTA also covers LLCs, recognizing that they can be used for legitimate business purposes but can also be vulnerable to misuse by those seeking to hide their identities for illegal activities.
Under the Act, certain significant individuals in LLCs must disclose their ownership interests, thereby increasing the accountability and transparency of these entities. This inclusion is important because LLCs have been a favored choice for money laundering and other illicit financial operations due to their relatively simple structure and the potential for anonymous ownership.
Other Similar Entities
The CTA encompasses similar entities created under state law and provides limited liability to their owners. These could include partnerships, trusts, or other structures that can be used to obscure beneficial ownership. The act targets these entities because they can also be exploited for financial crimes. By requiring them to disclose their beneficial owners, the CTA aims to close loopholes that have been exploited in the past.
How Are Beneficial Owners Defined Under the Corporate Transparency Act?
The CTA defines beneficial owners as individuals who hold a significant stake in a covered company. Specifically, a beneficial owner is someone who either directly or indirectly owns 25% or more of the ownership interests in the company. This means that if an individual, whether through direct ownership or indirect means such as holding shares through another entity, has ownership of a quarter or more of the company, they are considered a beneficial owner.
Moreover, the Act considers individuals with substantial control over the company as beneficial owners. This refers to individuals who have the authority to make significant decisions or exert influence over the company’s operations and policies. These individuals might not meet the 25% ownership threshold but are still recognized as having a considerable role in the company’s affairs.
This definition intends to uncover the true individuals with a controlling or beneficial interest in a company. By identifying these individuals, the Act aims to prevent the misuse of corporate structures for illicit purposes such as money laundering, terrorism financing, and other financial crimes. The disclosure of beneficial ownership information provides law enforcement agencies with the means to track and investigate potential wrongdoing, ultimately enhancing the overall transparency and integrity of the business environment.
Common Types of Money Laundering Schemes Targeted by the Corporate Transparency Act
There are many different types of money laundering schemes. The following are examples of common schemes that the CTA aims to deter by requiring companies to disclose beneficial owners:
Shell Company Laundering
Shell company laundering involves the use of anonymous or fictitious entities (shell companies) to conceal the origins of illicit funds. Criminals establish these companies with no legitimate business purpose, making it difficult to trace the funds back to their illegal source. For instance, a criminal might set up a shell company and use it to receive payments from fake invoices, thus disguising the origin of the money as legitimate business transactions.
Real Estate Laundering
Real estate laundering occurs when criminals invest illicit funds into real estate properties, often high-value ones, to legitimize their wealth. By purchasing properties through anonymous entities, money launderers can obscure their identities and make it challenging for authorities to track the source of the funds. For example, a criminal could buy luxury properties using funds obtained from illegal activities, making it appear as if the money came from legitimate property transactions.
Trade-Based Laundering
Trade-based laundering involves manipulating trade transactions to move money across borders and obscure its origins. Criminals may over-invoice or under-invoice goods in international trade deals, creating a discrepancy between the actual value of the goods and the reported value. This allows them to move money across borders while disguising it as legitimate trade. For instance, a criminal group might inflate the value of exported goods on paper, effectively sending excess funds to an offshore account.
Digital Currency Laundering
Criminals exploit cryptocurrencies’ pseudonymous nature to launder illicit funds. They convert funds into digital currencies, perform complex transactions, and then convert back to traditional currencies, obfuscating the money trail. For instance, a criminal could use Bitcoin to mix funds with legitimate transactions, masking the source of the illicit funds.
What to do if you have been Utilizing Shell Companies to Commit Income Tax Evasion.
Almost any federal crime, outside of income tax evasion, cannot be reversed after it’s been committed. Income Tax Evasion is different in that if you approach the government and voluntarily report your criminal tax behavior before they have begun an audit a criminal tax investigation, you can secure a pass on criminal tax prosecution and get back into compliance without risking jail time.
If you have failed to file a tax return for one or more years or have taken a position on a tax return that could not be supported upon an IRS or state tax authority audit, eggshell audit, reverse eggshell audit, or criminal tax investigation, it is in your best interest to contact an experienced tax defense attorney to determine your best route back into federal or state tax compliance without facing criminal prosecution.
Note: As long as a taxpayer that has willfully committed tax crimes (potentially including non-filed foreign information returns coupled with affirmative evasion of U.S. income tax on offshore income) self-reports the tax fraud (including a pattern of non-filed returns) through a domestic or offshore voluntary disclosure before the IRS has started an audit or criminal tax investigation/prosecution, the taxpayer can ordinarily be successfully brought back into tax compliance and receive a nearly guaranteed pass on criminal tax prosecution and simultaneously often receive a break on the civil penalties that would otherwise apply.
It is imperative that you hire an experienced and reputable criminal tax defense attorney to take you through the voluntary disclosure process. Only an Attorney has the Attorney-Client Privilege and Work Product Privileges that will prevent the very professional that you hire from potentially being forced to become a witness against you, especially where they prepared the returns that need to be amended, in a subsequent criminal tax audit, investigation or prosecution.
Moreover, only an Attorney can enter you into a voluntary disclosure without engaging in the unauthorized practice of law (a crime in itself). Only an Attorney trained in Criminal Tax Defense fully understands the risks and rewards involved in voluntary disclosures and how to protect you if you do not qualify for a voluntary disclosure.
As uniquely qualified and extensively experienced Criminal Tax Defense Tax Attorneys, KovelCPAs, and EAs, our firm provides a one-stop shop to efficiently achieve the optimal and predictable results that simultaneously protect your liberty and your net worth. See our Testimonials to see what our clients have to say about us!
Call Our Dual-Licensed Tax Lawyers & CPAs for Help with Your Tax Issues
Get support from our Dual-Licensed Tax Lawyers & CPAs by calling the Tax Law Offices of David W. Klasing today at (800) 681-1295.
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