CTA Imposes New Small Business Reporting Requirements for 2024

Small business owners have one more item on their compliance to-do list when it comes to their business entities. The Corporate Transparency Act (CTA) took effect on January 1, 2024 contains strict reporting requirements that will affect most businesses.

The CTA,enacted as part of the Anti-Money Laundering Act of 2020 (AMLA), places new reporting requirements on many business entities in an effort to expose illegal activities, including the use of shell companies to launder money or conceal illicit funds. Around 30 million small businesses will be impacted by the law, which will establish a federal database of information, furnished by “reporting companies,” that will be accessible to certain authorities and organizations.

A final rule has been issued stating how the new law will be implemented to help businesses understand whether the law applies to them, how to comply, and which agencies will have access to the information they must report. CTA violations carry civil and criminal penalties, including imprisonment.

What does the CTA require?

Effective January 1, 2024, the CTA requires that certain businesses disclose to FinCEN information about the company, its beneficial owners, and in some cases, the company applicant.

Does the CTA require my business to report?

The CTA applies to companies that are created by filing a document with a state authority. Typically, this includes corporations and limited liability companies. Depending on the state, it could also include limited partnerships, professional associations, cooperatives, real estate investment trusts, and trusts. In addition, the CTA applies to non-US companies that are registered to operate in the United States.

Current estimates indicate that 30 million small businesses will have to report to FinCEN.

However, the CTA exempts around two dozen categories of companies, including companies that

• are publicly-traded;
• have more than twenty full-time US employees;
• filed a previous year’s tax return showing more than $5 million in gross receipts or sales;
• have an operating presence at a physical US office location;
• operate in a regulated industry, such as banking, utilities, or insurance, that already imposes similar reporting requirements; or
• are subsidiaries of exempt organizations.

The exemptions, which generally include larger companies that are already subject to regulation, underline the primary purpose of the CTA: to combat money laundering and other illicit activities conducted via small, private, and anonymous shell companies.

What information must be provided in the reports?

The CTA requires three categories of information to be reported: the company, its owners, and the applicant.

The information is provided to FinCEN by filing a Beneficial Ownership Information (BOI) Report. The following is what is required in the report for a company, an owner, and an applicant:

• The reporting company must provide its name and any alternative (DBA) names, the address of its principal place of business, the state of formation, and its taxpayer identification number or FinCEN identifier.

• Each beneficial owner of a reporting company must furnish their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification (ID), along with a copy of the ID document. A “beneficial owner” defined as someone who: i) exercises “substantial control” over the entity; or ii) owns at least 25% of the entity.

• A company applicant is required to submit the same information as a beneficial owner.

Are there penalties for noncompliance with the CTA?

Penalties for noncompliance may be steep. Willingly providing false information (including false identifying documents) to FinCEN, or failing to report complete BOI information, can result in:

• Fines of $500 per day, up to $10,000
• Imprisonment for up to two years

Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submits an updated report correcting the inaccurate information within ninety days.

Get help with CTA reporting requirements.

Understanding how the CTA applies to you, how it will affect your business, and what you must do to comply introduces new burdens that you may have scarce resources to address.

Terms like “beneficial owner” and “substantial control” may seem vague and confusing, further complicating compliance efforts. But compliance is critical for business owners who want to avoid possible sanctions.

We can help you determine whether the CTA applies to your business and the steps needed to meet its reporting requirements. With the law’s deadlines approaching, we encourage you to reach out now to start working on your company’s CTA compliance.