Important Update: New Federal Filing Requirement Effective January 1, 2024
I want to inform you about a significant regulatory update that could impact your business operations. The Corporate Transparency Act (CTA) will be taking effect in its first stage on January 1, 2024, after several years of anticipation.
Who Does the CTA Apply To?
The CTA introduces a new federal filing requirement primarily targeting most corporations and limited liability companies (LLCs) established in 2024 onwards. The initiative aims to deter illicit activities such as money laundering and tax evasion facilitated through anonymous shell companies, but it also impacts legitimate business owners.
However, not all businesses fall under this act. It primarily concerns entities like corporations and LLCs that are formed by registering documents with a state secretary or a similar state office, excluding sole proprietors.
Exemptions:
Certain businesses will be exempt from the CTA:
Large enterprises boasting more than 20 full-time employees and a prior-year tax return reflecting over $5 million in receipts.
Entities subjected to substantial government regulations, such as banks and insurance companies.
Non-profit organizations and a few other categories.
Key Requirements:
The crux of the CTA is the establishment of a comprehensive government database managed by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Businesses are required to report the identities and pertinent details of their "beneficial owners"— individuals who have significant ownership or control over the entity.
New corporations or LLCs formed in 2024 must submit a beneficial owner information report within 90 days of establishment. The necessary details include:
Full legal name of the owner
Date of birth and complete current residential address
Unique identifying numbers from valid identification documents, accompanied by an image of the said document
Submission Platform:
Reporting will be done through an online federal database named BOSS (Beneficial Ownership Secure System). Commencing January 1, 2024, submissions will be open, and no filing fees will be charged. Rest assured, the information submitted to BOSS is intended solely for official use by government agencies like law enforcement and the IRS, maintaining confidentiality from public disclosure.
Conclusion:
The Corporate Transparency Act introduces a new era of transparency for corporations and LLCs, demanding beneficial ownership disclosures to deter financial crimes. Affecting mostly entities formed in 2024, it mandates reporting through the new BOSS system, exempting large companies, heavily regulated entities, and nonprofits. As January 1, 2024, approaches, preparing for compliance is essential for affected businesses to avoid disruptions. Understanding the CTA’s requirements and exemptions is key to a smooth transition into this new regulatory framework.