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How do you comply with the Corporate Transparency Act?

U.S. lawmakers recently introduced the Corporate Transparency Act. It is a significant piece of legislation that aims to make corporations and limited liability companies more transparent and accountable. The act requires all publicly traded United States companies to disclose their political spending. There are many aspects of the law that you should know, including how you should comply. Begin by learning the following about the Corporate Transparency Act

The Background Of The Corporate Transparency Act

The Corporate Transparency Act authorized the Financial Crimes Enforcement Network (FinCEN) to enforce regulation requiring US companies to disclose personal information of its owners. FinCEN will require companies to disclose key identifying details that can be used to verify that said business is not participating in any money laundering activities.

Why Is It Important To Know A Company’s Owners?

Knowing who you invest your money with is typically in your interest as a consumer. However, the CTA is mainly concerned with using this information to build a knowledge network across all registered LLCs and Corporations. Such a resource could then be used by authorities to identify and/or track down any types of fraud, laundering, under-reportings, etc.

Under FinCEN’s authority, all companies must disclose information about their beneficial owners. They should be able to find this information in a properly stored location when/if they request it. The beneficial owners will so far be defined as those who have 25% or more ownership of the given company.

The CTA Outline

The Corporate Transparency Act (CTA) requires U.S. companies to disclose their subsidiaries, the foreign countries in which they operate, and information about the beneficial ownership of corporate officers and directors. The CTA provides further details on what you should include in a beneficial ownership document and requires the SEC to establish electronic databases of this information available to law enforcement agencies for criminal, civil, and regulatory investigations for possible violations of federal laws.

Who Does The CTA Cover?

The Corporate Transparency Act (CTA) is an anti-corruption measure that requires U.S. and foreign companies doing business within the country to report certain information about the beneficial owners of their businesses. Beginning with the 2021 tax year, all affected companies or entities that conduct financial transactions with the United States must apply for an EIN (Employer Identification Number) and report their U.S.-based owners in their corporate records.

Are There Any Exceptions To The CTA?

The Corporate Transparency Act does not apply to existing companies that have over $5,000,000 in revenue and have over 20 US employees. In addition, a minor child is exempt given that their parent has disclosed their details for them.

To determine if a company qualifies for one of these exemptions, you must first determine if any of the following conditions are met:
    1. Does your business bring in over five million in revenue as reported to the IRS?
    2. Do you have more than twenty US-based employees?
    3. Do you have an operating presence in a physical office in the US?
    4. Are you one of the following types of entities as listed here?

Small businesses and any newly formed businesses are the main focus as far as who this regulation will target. Only businesses that have already been established may apply to the exceptions mentioned in the paragraph above.

What Information Do You Need To Submit Under The CTA?

The Corporate Transparency Act requires you to submit a report to FinCEN that includes information about the beneficial owners. You must provide this information not only for yourself as an individual customer or employee but also for any legal entity that owns or controls your business. A person opening an account must provide their name, address, date of birth, and a valid ID to comply with the CTA.

When filing under Rule 3100-0317-01: Identification of Beneficial Owners in Financial Institutions ("Beneficial Owner Rule"), financial institutions must maintain accurate records of all accounts opened in the name of an entity or individual. These records should include the following:
    • The name and identity number (e.g., driver's license number) of each beneficial owner;
    • The identification number of each financial institution where such account is maintained;
    • The type(s) and location(s) of such accounts;
    • Account balance or value at the time of closure;
    • Name(s), address(es), social security number/taxpayer identification number (TIN)/social security number/date of birth, and other contact information (e.g., email address) for each legal or natural person that owns or controls such entity

What Are The Penalties For Non-Compliance With The CTA?

The penalties for non-compliance can be significant. The CTA provides for civil monetary penalties of $500 to $50,000 per violation (or up to $1 million per violation in certain circumstances), attorneys' fees, and costs. If the government obtains a judgment that is not paid, it can obtain a lien on your property, including your equity and timeshare projects. In addition, it can still collect the penalties even if you sell your timeshare to another person.

How Do You File Under The CTA?

The exact method for filing under the CTA as an LLC or corporation has not been completely established yet. Which is why it is so crucial to stay on top of these developments as a business owner, accountant, business leader, etc. If you are anticipating not being exempt from these regulations, you may want to reach out to a professional or obtain a preparation kit as offered from CTA Filer.