The Corporate Transparency Act (the “CTA”) is set to take effect on January 1, 2024, and requires certain entities to report information that has not previously been required by the federal government. According to federal government estimates, the CTA will apply to 32.6 million entities in 2024, and 5 million newly formed entities each year thereafter. Note that non-compliance may result in fines ranging from $500 to $10,000 per violation, along with potential jail time of up to two years.
Purpose of the CTA:
The CTA was enacted to improve transparency regarding entity ownership. The CTA is intended to combat the misuse of corporations and other entities regarding tax fraud, money laundering, and other financial crimes. The CTA establishes a database of beneficial ownership information, which will be used by the Financial Crimes Enforcement Network (“FinCEN”) to aid its investigations. Congress has determined that the privacy previously granted to the owners of corporations or other entities has been exploited by criminal enterprises to facilitate illegal activities, creating an obstacle for federal law enforcement in conducting investigations.
An entity formed on or after January 1, 2024, must file its beneficial ownership information within 90 days of the entity’s creation. Additionally, an entity formed on or after January 1, 2024, will need to report applicant information as defined in the CTA. An entity existing before January 1, 2024, must file its beneficial ownership information before January 1, 2025.
A covered entity is required to update its beneficial ownership information within 30 days anytime there is a change to the beneficial ownership. For example, an update will likely be required after the sale, acquisition, merger, death of beneficial owner, or any other reason for which the entity becomes aware that the information previously filed has become inaccurate.
Although the requirements of the CTA may seem simple at first glance, compliance may become complicated depending on each entity’s specific structure and formation. Attorneys at Underwood Law Firm, P.C. stand ready to assist and advise you with complying and maintaining compliance with this new law. Non-compliance comes with steep civil fines and potential criminal issues, therefore, your immediate attention is absolutely necessary.
This letter is intended only to be a general overview of the CTA and does not constitute general legal advice or legal advice about your particular situation. For more information, please contact the Underwood Law Firm.
December 22, 2023