The Corporate Transparency Act (CTA) became effective January 1, 2024. It enhances anti-money laundering and anti-terrorism financing by requiring “reporting companies” to report information about their “beneficial owners.” But many company and trust overseers report confusion about its requirements — and exactly how to comply.
The filing requirements of the Corporate Transparency Act impact millions of individuals. For many, it clearly applies or doesn’t; for others, it’s murkier. Prudence suggests when in doubt, file (even though it might feel like an invasion of your privacy).
Put another way, if you’re a small-business owner or leader, burying your head in the sand isn’t an option — it could lead to civil and even criminal penalties.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Follow three key steps to ensure you’re doing an effective CTA CYA:
1. Determine if you are a 'reporting company.'
Reporting companies are entities created by a filing with a secretary of state or similar office. The most common forms are corporations, limited partnerships and limited liability companies. They don’t have to be operating companies (for example, an LLC that holds title to your beach house). Yes, there are numerous exceptions (23, in fact). To learn more:
- Study the FinCEN website, especially the reporting company FAQs
- Check your state’s website to see if the company is registered
- Talk to your attorney — and do so quickly (see deadlines below)
2. Clarify who are the 'beneficial owners.'
A beneficial owner of a company is an individual who either exercises substantial control or owns or controls at least 25% of the company. There are definitions (such as substantial control) and exclusions (such as a minor whose parent or legal guardian is otherwise reported).
For trusts, beneficial owners are the individuals owing the interest through the trust. This means one or more of the trustee, beneficiary, settlor or other people (e.g., trust protector), depending on the terms of your trust.
These concepts can be confusing. Again, visit the FinCEN website and talk with your attorney — and again, sooner rather than later. If you are still unsure, consider the prudence in reporting everyone who is or might be a beneficial owner.
3. Identify your 'company applicant.'
Reporting companies formed in 2024 (or later) must report the “company applicant.” This is the person who filed the document creating the company. For example, the attorney who files on behalf of a client but includes those who file as a favor for a friend. If applicable, you’ll need the applicant’s information, and that could take time to get (and you have only 90 days).
What you need to report effectively
Reporting companies must submit a Beneficial Ownership Information Report (BOIR) on the FinCEN website, providing for each beneficial owner and company applicant:
- Full legal name
- Date of birth
- Current street address
- Identifying number from an acceptable ID (e.g., a passport or driver's license)
- A picture of the ID
Alternatively, you can provide your FinCEN identifier number (obtained by filing the same information). The identifier is convenient if you need to file multiple times.
Two major challenges: beneficial owners who don’t have a currently valid ID and those who won’t cooperate promptly — or at all. Pro tip: Task someone with getting the information and filing the reports and all updates.
Deadlines you should know
Filing deadlines are based on when the company was created:
| Created | Due Date |
|---|---|
| Before 1/1/2024 | On or before 12/31/2024 |
| 1/1/2024 - 12/31/2024 | Within 90 days |
| 1/1/2025 or later | Within 30 days |
| Changes to reported info | Within 30 days |
| Loss of exemption | Within 30 days |
Beware: Non-compliance penalties
Why are many clients so worried? The CTA’s harsh penalties:
Non-compliance can result in civil penalties of up to $500 per day and criminal penalties of up to $10,000 in fines and/or up to two years in prison.
Disclosure and use violations can result in civil penalties of up to $500 per day and criminal penalties of up to $250,000 in fines and/or up to five years in prison. Doing so while violating another U.S. law or as part of a pattern of illegal activity involving more than $100,000 in a 12-month period can incur a fine of up to $500,000 and/or up to 10 years in prison.
People may “face penalties” for willfully causing a reporting company to fail to file complete or updated information (FinCEN FAQ K.5). A smart practice when creating an entity is to gather the information up front.
The bottom line: CTA CYA
The Corporate Transparency Act nobly strives to enhance combating money laundering and terrorism financing. But it is sweeping, and the definitions are tricky.
You likely aren’t involved in illicit financial activity, and you may be hesitant to share your information, but if you know you should file, file. And if you’re unsure, it’s safer to file when not needed than not file when needed.
Related Content
- What Is the F Reorganization, and Why Is It So Popular?
- A Tax Planning Cautionary Tale: Timing and Formalities Are Critical
- Business Owners Should Review Their Buy-Sell Agreements
- Five Tax Breaks Business Owners Might Not Know About
- Five Strategies for Maximizing Your Business' Profitability
-
ESPN to Acquire NFL Network and RedZone in Exchange for 10% Equity StakeESPN will take control of NFL Network and RedZone, while the NFL secures a 10% stake in ESPN — a move that could change how fans watch football.
-
Stocks Rally on Apple Strength: Stock Market TodayThe iPhone maker will boost its U.S. investment by $100 billion, which sent the Dow Jones stock soaring.
-
I'm an Estate Planning Attorney: These Are the Two Legal Documents Everyone Should HaveEvery adult should have a health care proxy and power of attorney — they save loved ones time, money and stress if a sudden illness or injury leaves you incapacitated.
-
I'm a Financial Professional: Here's My Investing Playbook for Political UncertaintyFor successful long-term investing in a politically charged environment, investors should focus on economic data, have a diversified portfolio and resist reacting to daily headlines.
-
The Truth About the Dark Side of Rooftop Solar PanelsRampant bankruptcies in the solar panel industry have left many consumers with systems that don't work and no way to get them fixed. Worse, they're being hounded to keep paying despite not receiving what they were promised. What can they do?
-
Six Big Beautiful Opportunities: Advisers' Guide to Tax and Client StrategiesHere are several ways financial professionals can help their clients maximize opportunities in the One Big Beautiful Bill Act, which extends key TCJA provisions, introduces increased deductions for people 65 and older and more.
-
Five Ways to Maintain Charitable Giving During Volatile Times: A Giver's GuideWhen the economic outlook is uncertain, charitable giving is even more important — and impactful. You can be strategic by using donor-advised funds, diversifying assets and prioritizing unrestricted gifts.
-
Avoid Medicare's 'Shadow Tax' With This Financial Expert's IRMAA-Busting TipsYou're cruising along in retirement, and then bam: Your Medicare premiums soar because your income crossed the limit. Take a breath. There could be a solution.
-
Grilling Season and ETFs: There's More Than One Way to Cook Up a PortfolioExchange-traded funds come in a multitude of 'flavors' these days, from passive to active to factor-based. Their flexibility is what makes them so delicious.
-
You Don't Want It, But You Should Plan for It Anyway: An Expert Guide to Long-Term CarePlanning for long-term care is crucial to protect your independence, family and financial stability against unexpected health events and rising care costs not covered by standard insurance.
