Understanding the Corporate Transparency Act and How It Affects You
As your trusted tax partners, we are committed to keeping you informed about significant legislative changes that may impact your financial and business decisions. Today, we want to introduce you to the Corporate Transparency Act (CTA), a significant development that may affect many of our clients, particularly those who currently operate business entities or are considering establishing one in 2024or beyond.
What is the Corporate Transparency Act (CTA)?
The CTA now requires most businesses to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of Treasury. The goal of this legislation is to prevent the misuse of legal entities for illicit purposes, such as money laundering and financing terrorism. By ensuring these reporting requirements, it is now much more difficult to have anonymous or hard-to-identify people who are associated with these entities.
Who Will Be Affected?
It's important to note that the CTA will primarily impact:
- Clients who currently have existing business entities.
- Clients who are planning to create new business entities in 2024 or beyond.
If you don't have a business or plan on creating a business, it's unlikely that the CTA will have a direct impact on your current tax situation. However, staying informed is always beneficial.
Understanding Beneficial Ownership and Reporting Requirements
A key aspect of the CTA is the concept of 'Beneficial Ownership'. Beneficial owners are individuals who ultimately own or control a legal entity, such as a corporation or limited liability company. This can include anyone who owns 25% or more of the entity's equity interests or exercises substantial control over the entity.
The CTA requires these entities to report details about their beneficial owners to FinCEN. This information includes the owners' names, addresses, date of birth, and an identification number (such as a passport number or driver's license number). The reporting process is designed to be straightforward and will be a critical step for maintaining compliance with the new legislation.
Our Firms Position and How We Can Help
Our team is here to help you understand how the CTA might affect your business and to guide you through any necessary compliance steps. Our team has completed the necessary steps with FinCEN to handle and process the required filings for our clients.
However, as of writing this, there is a current lawsuit from the National Small Business Association (NSBA) against the CTA, as well as pending clarifications from agencies concerning some of the bill’s language. Given this evolving landscape, our firm has decided to adopt a cautious approach. We believe it is in the best interest of our clients to wait for further legal clarity and agency guidance.
Therefore, we have determined that we will not be conducting any FinCEN filings to comply with the CTA until June 2024 for existing entities. Note that all business entities created before January 1st 2024, have an entire calendar year until January 1st 2025 to be in compliance with the law. This timeline allows for potential resolutions to these legal challenges and for the issuance of comprehensive guidance from the appropriate authorities.
We understand that staying compliant with changing regulations is crucial for your business, and we remain committed to keeping you informed and well-advised. This decision is made with your best interest in mind, ensuring that any action we take is based on solid legal footing and clear regulatory directives.
We sent out an announcement to our business clients with a summary of tax law changes for 2023 which included a quick synopsis of the CTA. For those who want an additional detailed breakdown and understanding of the law, click here.
Thank you for your continued trust in our expertise.
Warm regards,
David Levinson
Snap Advisory Inc