The Corporate Transparency Act is a Federal Law which was enacted on January 1, 2021. Its claimed purpose is to make money laundering and tax evasion more difficult by creating a data base repository of ownership information for all small businesses operated in the United States. It is specifically not a public record and the disclosure of beneficial ownership information is prohibited. The information contained in the database is specifically only to be disclosed to a federal or state agency engaged in law enforcement activity.
Failure to comply with the Corporate Transparency Act can result in a civil penalty of up to $500 per day and criminal penalties of up to a $10,000 fine and/or up to imprisonment for two years. The filing deadline to comply with the Corporate Transparency Act for businesses created prior to January 1, 2024 is the end of 2024 which means that businesses established already have until the end of 2024 to file their report. Anyone who creates a business in 2024 must file the report within 30 days of the businesses creation.
Reporting under the Corporate Transparency Act only requires an initial filing and does not need to be annually updated. However, if there is a change related to a beneficial ownership interest or a change in non-owners who exercise substantial control over the business then an updated report must be filed within 30 days.
The Corporate Transparency Act only applies to small businesses and specifically does not apply to publicly traded companies, companies regulated by the SEC or highly regulated companies in industries such as insurance, financial services and utilities.
The law applies to any business that was created by the filing of a document with a Secretary of State which includes corporations, LLCs, Limited Partnerships, Limited Liability Partnerships and Limited Liability Limited Partnerships. Basically anyone reading this article is probably required to file.
Rental property owners are not per se required to file. However, if the rental property owner holds their real property in either a corporation, LLC or Limited Partnership then they are required to file. It is important to understand that every LLC (even if it does not separately file a tax return) must comply with the Act. For instance if a property owner has an LLC that owns interests in 4 sub LLCs called disregarded entities then that property owner would be required to file 5 reports to be in compliance with the Act.
The Act requires that a business file its report to the FinCEN (Financial Crimes Enforcement Network). In addition to providing company information such as the company name, principal place of business and tax ID number the company must also provide Beneficial Ownership Information (BOI) which requires disclosure of any individual owner who either directly or indirectly holds an interest in the company which is at least 25% of the equity in the company. Also, nonowners who exercise substantial control must also be disclosed.
Those who exercise substantial control are typically officers, directors, managers or other people in the company who can make important decisions for the company independent of obtaining authorizations from the company owners.
One exception to the filing requirement applies to larger businesses. If a company has gross receipts (revenues) exceeding $5.0 Million, has more than 20 full time employees and has an office in the U.S. then it is exempt from filing with the FinCEN. However, note that if the company falls below those requirements then it must file within 30 days of that change.
It is strongly recommended that you discuss whether you are responsible for filing a report with the FinCEN with either your attorney or accountant. Due to the potentially huge civil penalties of up to $500 per day you really don’t want to fail to comply with the Corporate Transparency Act.
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