It is crucial to stay ahead of the curve when it comes to understanding and implementing new regulations. One of the most significant legislative changes on the horizon is the Corporate Transparency Act (CTA).

The CTA, enacted to enhance transparency in business ownership and combat illicit activities such as money laundering and tax evasion, requires many businesses to disclose detailed information about their beneficial owners. Here's a closer look at what the CTA entails, which businesses are affected, and what steps should be taken to ensure compliance.

What is the Corporate Transparency Act?

The Corporate Transparency Act is a key provision of the Anti-Money Laundering Act of 2020, designed to prevent the misuse of shell companies and other business entities for illegal activities. The CTA mandates that corporations, limited liability companies (LLCs), and other similar entities report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.

Which Businesses are Subject to the CTA?

The CTA primarily targets smaller entities that may be used to obscure true ownership. This includes:

• Corporations
• Limited Liability Companies (LLCs)
• Other similar entities are created through the filing of a document with a secretary of state or similar office under the laws of a state or Indian tribe.

Exemptions Under the CTA

While the CTA casts a wide net, certain businesses are exempt from its reporting requirements. These exemptions generally apply to entities that are already subject to substantial federal or state regulation, including:

• Publicly traded companies – These entities are already required to disclose substantial information under securities laws.
• Certain larger companies – Companies that meet specific criteria, such as having more than 20 full-time employees, over $5 million in gross receipts or sales, and an operating presence at a physical office within the United States, may be exempt.
• Regulated entities – Banks, credit unions, insurance companies, and other entities subject to similar federal regulations.
• Inactive entities – Certain entities that have been in existence for over a year, have not engaged in business during that time, and do not hold assets, are also exempt.

Understanding Beneficial Ownership

Under the CTA, a "beneficial owner" is defined as any individual who:

• Directly or indirectly exercises substantial control over the entity.
• Owns or controls at least 25% of the ownership interests of the entity.

This definition is broad, capturing individuals who have significant influence over the company’s operations, even if they do not hold a formal title.

What Businesses Should Do Now to Prepare

Preparation for compliance with the CTA should begin immediately. Here’s a roadmap to help your business stay on track:

• Identify Beneficial Owners: Start by conducting a thorough review to identify all beneficial owners according to the CTA’s criteria. This may involve digging into complex ownership structures to uncover indirect ownership.
• Document Ownership Information: Collect and maintain detailed information on each beneficial owner, including their full name, date of birth, residential address, and an identifying number from an acceptable identification document (such as a passport or driver's license).
• Implement a Reporting System: Develop an internal process for gathering, verifying, and reporting beneficial ownership information to FinCEN. This system should ensure that the information is accurate, complete, and submitted within the required timeframes.
• Review and Update Regularly: Beneficial ownership information can change, so it’s essential to establish a routine for regularly reviewing and updating records. Ensure that any changes are promptly reported to FinCEN to remain compliant.
• Consult with Tax Experts: Given the complexities involved, it’s advisable to work closely with tax professionals who can provide guidance tailored to your specific situation. This will help you avoid potential pitfalls and ensure full compliance.

The Corporate Transparency Act represents a significant shift in how businesses must manage and disclose ownership information. By understanding the requirements, identifying exemptions, and taking proactive steps to prepare, businesses can navigate these changes with confidence. The people at ATAX Tax Service are available to assist in making this transition as smooth as possible, ensuring that your business remains compliant while minimizing any disruptions to your operations.