The Corporate Transparency Act (CTA) is part of the National Defense Authorization Act of 2021 and is effective on January 1, 2024. The CTA mandates the filing of ownership information reports for all corporations, limited liability companies and other entities registered to do business in the United States. The CTA filings are intended to identify illegal activities such as money laundering, terrorism, drug trafficking, etc.... via information reporting about ownership and beneficial ownership of entities. The United States Government is concerned that the lack of transparency has fueled illegal activities within legal entities in the U.S.

The CTA will predominantly apply to foreign corporations, but domestic companies should also be aware of the filing requirements to ensure that they are not affected by the new guidelines.  There are 23 categories of entities that are exempt from filing. A few of the more common categories include the following:

• Companies with more than 20 full time employees, annual gross receipts of more than $5 million and a physical presence within the United States.
• Companies already subject to other government regulations such as banks, investment advisors, companies filing with the SEC, public utility companies, etc....
• Inactive entities.

Reporting companies formed before January 1, 2024, are required to file by January 1, 2025. Entities formed on or after January 1, 2024, must file within 30 days of creation/registration. Also, any changes in ownership on previously filed reports must be reported within 30 days of the change.

The information report must include:

• Full legal name
• Trade name or “DBA”
• Address
• State or foreign jurisdiction of formation
• Taxpayer identification number
• Each owner/beneficial owners name, date of birth, address and ID number and supporting document.

• A beneficial owner is an individual who exercises substantial control over the company or owns/controls at least 25% of the ownership interest.
• Substantial control is any individual that is a senior officer, has authority over appointing or removing any senior officer, or has any other form of control over a reporting company.
• An ownership interest includes equity, capital, profits interest, or any other type of investment instrument. 

If you do not meet the domestic large business company exemption (or another exemption) you will be required to fill out this report. This new filing requirement will affect millions of small business entities. Please contact your tax professional at Dermody, Burke & Brown so we can help you navigate the complexities of these new filing requirements.

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.