The Corporate Transparency Act (CTA) is a new law that will require privately held entities to report detailed private information to the Treasury. The rules are complex and provide for stringent penalties for noncompliance. The CTA will have a significant impact on individuals and businesses that have undertaken estate planning, asset protection planning, own real estate, and more. Complying with the new CTA rules will be costly, nettlesome, concerning in terms of penalties, and will make individuals and businesses very uncomfortable disclosing information that they probably never did before.

The CTA aims to create a comprehensive, searchable, national database of entities. The objective is to pierce entity solution and identify those behind each entity. The reporting requirements are very different from tax returns and may not be handled by your CPA. Instead, you might need to engage your attorney. The reporting requirements will affect the owners or principles involved in almost all business entities, including limited liability companies (LLCs), corporations, limited partnerships (LPs and FLPs), and other closely held entities. When you engage in estate or asset protection planning, or structure business or real estate investments, you routinely have and will create entities that will be subject to CTA reporting.

The CTA reporting requirements will affect most small family businesses, including LLCs and other entities designed only to hold vacation or rental homes. Even if an entity has only one owner and is ignored for federal income tax purposes (like a single-member disregarded LLC), it may still have to file reports with FinCEN. If you have any ownership interests in any closely held entity, such as an LLC, corporation, or limited partnership (any entity that required a filing with a state agency such as the Secretary of State or any similar office), then you may be subject to these requirements. This may even include foreign entities authorized to do business in the U.S.

The reporting entities will have to report the legal name and any trade names of the entity, a street address for the company’s principal place of business, state of formation, and the Tax ID number. These are the people behind or controlling each reporting entity. You’ll have to disclose your full legal name, date of birth, home address (a P.O. Box won’t suffice), and you’ll have to provide a PDF of your passport or driver’s license. Reporting entities must also report changes to any filing within 30 days.

If you control an entity you do not own, you too may have to file. If you are not an “owner” of an entity, but you exercise the authority which a senior officer of the entity might hold, you also have to report. If you are not an owner or officer, but if you have direct or indirect substantial control over the entity, you may have to report. This might include a chief financial officer, general counsel, trust protector, trustee, etc. The goal of the CTA is to reach those controlling the entity.

The Financial Crimes Enforcement Network (FinCEN) will be in charge of creating and maintaining the database of all information the government collects. It will be accessible to a variety of governmental agencies. The CTA reporting requirements are part of a growing worldwide effort to combat criminal activities, including tax evasion, money-laundering, and other financial crimes. This reporting has grown common in other developed countries, but is new to the U.S. and represents an effort to get the U.S. on par with reporting standards in other countries.

The Corporate Transparency Act (CTA) imposes significant fines for noncompliance with its reporting requirements. The Act authorizes civil penalties of up to $500 per day for each day of violation, up to a maximum of $10,000, for failure to file a report or to provide complete and accurate information. In addition, the Act authorizes criminal penalties for willful violations of up to $10,000 and up to two years in prison. The penalties can be severe, and it is important for individuals and businesses to take the CTA reporting requirements seriously and comply with them in a timely and accurate manner.

The effective date for the CTA rules is January 1, 2024. For entities that already exist by that date, their initial reports are due by January 1, 2025. For entities created 1/1/24 or later, a report is due within 30 days from the date of creation.

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This article is not professional tax or legal advice for your specific circumstances. Consult with your professional adviser to better understand how these items may impact you, or how they’ve changed