The Corporate Transparency Act (CTA), effective on January 1, 2024, requires many small businesses to report information on the individuals who own or control small businesses to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (finCEN).
The small businesses that are required to report additional information, referred to as "reporting companies", should familiarize themselves with the requirements prior to the reporting deadline of January 1, 2025.
The purpose of the CTA is to create a database of information on small business owners and operators in the United States to combat illicit financial activity, including money laundering, the financing of terrorism, tax fraud, and drug trafficking.
The beneficial owners, as defined by the CTA, and the information they are requiring small businesses to report is being referred to as "beneficial ownership information", or BOI.
While most large or publicly held companies are exempt from these reporting requirements, small or privately owned businesses are likely considered reporting companies.
We understand that being a business owner is daunting with the ever-changing legal and compliance mandates, and keeping up with every change is nearly impossible. Our team at Cornerstone PEO is regularly updated with legal and compliance changes and is prepared to share these updates with our clients. It's just one way that Cornerstone PEO makes it easier for you to manage your business risk.
For a comprehensive breakdown of the Corporate Transparency Act, Cornerstone PEO has outlined this act below in simpler terms for small business employers to understand what is required of them at this time.
Is my small business required to report information under the CTA?
All businesses need to establish if they are a “reporting company” under the CTA. If you are not a reporting company, then the CTA will not apply to you. A reporting company, referred to as a “domestic reporting company” is defined below:
A domestic reporting company is:
A corporation;
A limited liability company (LLC); or
Any other entity created by the filing of a document with a secretary of state or any other similar office under the law of a U.S. state or American Indian Tribe.
Under the CTA, there are also foreign reporting companies. These companies fall under the same guidelines and expectations, except they can be created in a foreign country and are still required to report in the U.S. due to conducting business here.
A business can be described as a “foreign reporting company” if they are registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a secretary of state or any other similar office under the law of a U.S. state or American Indian Tribe.
Entities that are considered domestic or foreign reporting companies may still be exempt from reporting under the CTA. There are 23 exemptions under this law, which businesses should carefully examine to confirm that they qualify for exemptions.
We recommend reading the complete CTA to confirm that you are exempt from reporting, but to put them simply, these exemptions include:
Large Operating Companies
With more than 20 full-time employees in the U.S.;
That reported more than $5 million in gross receipts or sales on their prior year’s U.S. federal income tax return; and
That have an operating presence at a physical office in the U.S.
Public Companies;
Inactive entities that existed on or before January 1, 2020;
Insurance companies and insurance providers;
Other highly regulated financial services companies (e.g., banks, credit unions, and registered securities brokers or dealers);
Public Accounting Firms;
Tax-exempt entities, like 501(c) (3) nonprofit organizations, political organizations, and certain trusts; or
Subsidiaries that are wholly owned or controlled, directly or indirectly, by certain exempt entities that are exempt from the CTA reporting requirements.
What is the deadline for reporting companies?
The CTA requires differing reporting deadlines depending on the date of creation for domestic reporting companies. The existing deadlines for reporting under the CTA are listed below.
If domestic reporting companies were created before January 1, 2024, the reporting deadline is January 1, 2025.
If domestic reporting companies were created on or after January 1, 2024 and before January 1, 2025, the reporting deadline is within 90 days of actual or public notice of such creation.
If domestic reporting companies were created on or after January 1, 2025, the reporting deadline is within 30 days of actual or public notice of such creation.
Additionally, if there are any changes to be made regarding the beneficial owners, an accidental inaccuracy, or other updated information, this change is required to be made within 30 days after the change occurred or the company was made aware of the change.
If you are a foreign registered company in the U.S., your registration date can be directly compared to the creation date mentioned above.
What information needs to be reported under the CTA?
Information that small businesses will be required to report will be regarding the reporting company and its beneficial owners. Beneficial owners are simply individuals who own or control the small business or entity. Beneficial Owner Information (BOI) is now required to be reported for many small businesses to eliminate the risk of money laundering, tax fraud, and financing of terrorism in the United States.
A beneficial owner is defined by the CTA as someone who, directly or indirectly, exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests. A beneficial owner could be through substantial control, ownership interests, or both, but there is no need to specify the reasoning.
Alongside what is listed above, there are more specific exceptions and guidelines to being a beneficial owner listed in the CTA. Cornerstone PEO recommends all employers read the CTA to ensure whether they are, or are not, listed within these guidelines.
In addition to reporting their beneficial owners, certain reporting companies must also report certain information about their company applicants.
A company applicant may be either a direct filer or an individual who directs or controls the filing action. A direct filer is the individual who directly filed the document that either created a domestic reporting company or first registered a foreign reporting company.
After establishing which individuals are considered beneficial owners and company applicants (if applicable), reporting companies must collect the following information:
Reporting Company Information:
Full Legal Name;
Any trade name or “doing business as” (DBA) name;
Complete and current U.S. address;
State, tribal, or foreign jurisdiction of formation;
Internal Revenue Service (IRS) Taxpayer Identification Number (TIN), including an Employer Identification Number (EIN).
Beneficial Owner and Company Applicant Information:
Full Legal Name;
Date of birth;
Complete current address (in most cases, the individual's residential street address); and
Unique identifying number and issuing jurisdiction form, and image of, one of the following non-expired documents:
U.S. Passport;
State driver's license;
Identification document issued by a state, local government or tribe, or;
If an individual does not have any of the previous documents, a foreign passport.
Small businesses in the United States are now at risk of getting penalized if they fail to comply with the new reporting expectations within the CTA. Cornerstone PEO is proud to let our clients, many of whom are small businesses, know of all new and upcoming legal and compliance expectations.
If you would like to know more information on legal and compliance changes as a small business, check back weekly on our blog for further HR insights, information on PEO services, and Cornerstone PEO updates.
We endeavor to keep you informed on legal and regulatory changes such as this, but this is not to be considered legal or tax advice and should not be treated as such. We recommend all employers contact their CPA for information and refer to the CTA through the official link below.
Link to the finCEN website regarding reporting BOI:
コメント