The Corporate Transparency Act was enacted in January of 2021 and beginning in 2024 your business may be subject to filing requirements with the Financial Crimes Enforcement Network (FinCEN). There are significant penalties for violating the law.

WHO IS COVERED BY THIS NEW LAW? Any corporation, limited liability company, limited partnership or any other entity that has to register with the states such as the secretary of state. This includes any entity from prior years, no matter how long ago they were formed, to new businesses. This would include normal operating businesses, but even LLCs that were set up just to hold personal investments or your home.

WHAT ENTITIES ARE EXEMPT FROM THE CTA? There are many exemptions from the law for certain businesses such as public companies and business subject to certain government regulations. However, the most important exemption for private businesses is a business (i) with twenty or more full time employees (per entity, not on a consolidated basis), (ii) domestic gross revenues of at least $5 million dollars based upon the tax return from for the prior year (including certain consolidated tax returns) and (iii) a physical office in the US. It’s important to note that for an entity to be exempt from the CTA requirement, it must meet all of the requirements stated above. Another important exemption is a dormant entity. A dormant entity means (i) an entity that existed on or prior to January 1, 2020, and (ii) is not engaged in an active business, and (iii) is not owned directly or indirectly by a foreign person, and (iv) has not sent or received funds in excess of $1000 in the preceding twelve months and (v) does not own any assets anywhere in the world. Again, an entity must meet all of these requirements to be considered “dormant”. The dormant entity exemption may allow many entities that were formed and abandoned from the burden of this filing.

WHAT INFORMATION DO I NEED TO FILE? The company must disclose the identities of anyone who owns directly or indirectly 25% for more of the company or who exercises “substantial control” over the company. The information also includes the  names of the owner, date of birth, address and a government issued i.d., such as a driver’s license with a copy of that document which therefore will have your picture. Additionally for any entities formed beginning in 2024 the entity must also give certain information about the “company applicant” which would, for example, include a law firm or accounting firm that helped set up the company. Of course, you will have to file information about your company including the name, trade name, address, and tax identification number.

WHEN DO YOU NEED TO FILE THE INFORMATION? Any company that existed prior to January 1, 2024, has until the December 31, 2024, to file with FinCEN. If you form an entity on or after January 1, 2024, you must file with FinCEN within 30 days of formation.

WHAT ARE THE PENALTIES FOR NOT FILING OR LATE FILING? The penalties for not filing are steep: Five Hundred dollars per day up to a maximum of $10,000 and up to two years of imprisonment. Individuals who willfully provide false information are subject to fines of up to $500,000 and imprisonment of up to three years.

WHY DID THEY PASS THIS LAW? Congress wanted to help prevent and combat money laundering, terrorist financing, corruption, tax fraud, and other illicit activity.

If you have any questions or comments about this article, please contact Michael L. Solomon, Esq., msolomon@ssandplaw.com.

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