If you own a U.S.-based business, you need to be aware of the new reporting requirements effective Jan. 1, 2024 under the Corporate Transparency Act (CTA). This rule applies to you if you have a corporation, S-Corp, LLC, or any other entity created by paperwork filed with a Secretary of State office. These requirements are not tax-related and are treated as a separate requirement by law. 

These are the actions you need to take to comply with the CTA as of Jan. 1, 2024:

  • You must comply with the CTA’s Beneficial Ownership Information Reporting Rule (Reporting Rule) and add your information to a federal database. The purpose is to help FinCen (the U.S. Treasury Department’s financial crimes unit) monitor the activities of businesses more closely to reduce related crimes.
  • This database will become a compilation of the information of the owners of the vast majority of small businesses and other organizations in the United States. 
  • The Reporting Rule is separate from tax return filings with draconian penalties for non-compliance.  
  • This first-of-its-kind database will be maintained by the Financial Crimes Enforcement Network (“FinCen”) which is a part of the Department of Treasury.
  • The database maintained by FinCen will not be publicly accessible, but it will be available to U.S. and international law enforcement agencies. 

The CTA Mandates Specific Reporting Criteria for Business Owners

If you plan to create a new business entity after January 1, 2024 you will have 90 days from the date of formation to provide this information to FinCen and submit any changes in the beneficial owners must likewise be reported within 30 days of the change. This includes changes to business owners’ licenses and driver’s licenses as well as any changes to the information listed below. 

Entities that existed prior to January 1, 2024, will have until January 1, 2025, to comply with the CTA. Companies created or registered on or after January 1, 2025, will have 30 calendar days to file their initial CTA reports.

If you are considering winding down a business, you may want to consider doing it before Dec. 31, 2023 to avoid having to file in accordance with the CTA. 

Each reporting company will be required to provide FinCen with the following information for the individuals that (i) exercise substantial control over the entity, or (ii) own or control 25% or more of its ownership interests (any of these individuals are termed “beneficial owners” under the CTA):

  1. Full legal name of the individual
  2. Date of birth
  3. Current residential street address
  4. Unique identifying number from a passport, state identification, or driver’s license
  5. Image of the individual’s passport, state identification, or driver’s license

Watch for Additional Updates on the CTA Requirements 

The CTA and Beneficial Ownership filing is mandatory for most  businesses and non-compliance may result in significant fines of $500 per day (up to a maximum of $10,000 per violation) and up to two years imprisonment. 

The best way to determine your reporting requirements for the CTA is to speak with a tax professional. You can review additional information here. Please be aware that this type of advisory engagement will be in addition to any tax filing or preparation fees.