Corporate Transparency Act Is Here!

Finally, it is time to comply with the Corporate Transparency Act (the "CTA").  The CTA was passed over President Trump's veto as part of the National Defense Authorization Act in January 2021.  We had to wait until the Treasury developed implementing regulations and the website structure and database to comply.  That date was extended until this year.

What does that mean for business owners and, well, everyone ?  If you create a company, you need to know about the CTA.  The CTA requires for all LLC, corporations, and limited partnerships to file a Beneficial Ownership Information Report (a "BOIR") with FinCEN unless the company is exempt.  What companies are exempt?  Mainly, insurance companies, insurance agencies, banks, securities dealers, companies with a threshold revenue and employee number, and "inactive" companies are exempt.  These companies already report beneficial ownership to the Treasury in the federal tax return or to another agency as a part of federal regulation.

Neither the large company threshold or the inactive company exceptions apply to new companies.  The large company exception is for a company with more than 20 employees, an office in the U.S., and at least $5M in gross receipts derived in the U.S. for the previous year.  Upon formation, a new company does not have employees or revenue in the prior year. 

An inactive company is a company that (A) was in existence on or before January 1, 2020, (B) is not engaged in active business, (C) is not owned by a foreign person, whether directly or indirectly, wholly or partially, (D) has not experienced any change in ownership in the preceding twelve month period; (E) has not sent or received any funds in an amount greater than $1,000, either directly or through any financial account in which the entity or affiliate had an interest, in the preceding 12 month period; and (F) does not otherwise hold any kind or type of assets, whether in or out of the U.S., including interests in other corporations, LLC, or similar entities.  As you can see, this exception does NOT apply to new entities, probably because all entities are "inactive" at the moment of formation.

Thus, you cannot create a company to hold an acre of land or some money inherited or whatever innocuous, non-business purpose.

For 2024, an entity has 90 days to file the report after formation, so hopefully, an entity can finalize all its owners by such time.  In 2025, the deadline is 30 days after formation!  What if all the planned investors have not joined the ownership group by the deadline?  Before the deadline, the entity should file the BOIR, and upon any changes, it must consider whether it must file an updated report.