Our main newsletter article last month focused on data privacy – the business of keeping information private and undisclosed.

This time, let’s talk about disclosure – specifically disclosure of your information as an agency owner to the federal government.

If your agency role includes the status of business owner, by now you have probably heard of the Corporate Transparency Act (“CTA”), which goes into effect on January 1, 2024.

While maintaining compliance with the CTA shouldn’t be difficult, failure to comply so can have some very expensive consequences.

We developed this Q&A to help answer some of the most popular questions about the CTA among agency owners and to help prepare your agency for 2024.

1. What is the Corporate Transparency Act?

Every state has different requirements regarding the formation of business entities. Some states require all business owner information be provided, other states require partial, and still others like Delaware and New Mexico require no personal information at all and are revered for their corporate privacy. But this lack of uniform entity organization and availability of information has made it easier for individuals to commit tax fraud or launder money through their corporate organizations.

The CTA was passed to provide greater transparency to the federal government about who owns various corporate entities by creating a database of business owner information so that the government is more effectively able to pinpoint and combat criminal activity. And unfortunately, the compliance requirement is “universal” as to all business entities.

2. Does it apply to me?

If you have a corporation, LLP, LLC, trust, or other similar entity registered with a U.S. State, this may apply to you. Exceptions exist for certain businesses including, without limitation, banks and other highly regulated industries, publicly traded companies, non-profits, and government entities.

An exception also exists for a company (and its subsidiaries) that has met the following three requirements:

• it employs more than 20 employees, AND
• it filed a tax return the previous year demonstrating more than $5 million in sales, AND
• it has an operating presence at a physical office within the United States.

Otherwise, almost every other business in the U.S. will need to comply with the CTA.

3. What do I have to do?

The personal information of every business’s “beneficial owner(s)” will need to be uploaded to a website called “FinCEN”. This personal information currently includes the owner’s name, date of birth, address, unique identifier number, and a photo of a document with such unique identifier number displayed.

If, over time, any changes are made to the ownership or to the personal information of the owners, this will need to be updated promptly with FinCEN.

4. Who is a “beneficial owner?”

A beneficial owner is currently defined by the CTA as someone who (1) exercises substantial control over the company or (2) owns or controls at least 25% of the ownership interests of the company. You may be wondering what “substantial control” means, and so are we! The CTA has not yet defined this term, but we expect more information will be available over time. For now, discuss the specific structure of your business with your legal counsel to ensure you are in compliance with the CTA.

5. Will my information remain private?

Yes. Your information will only be used for government purposes under the CTA and will not be available for public access or use.

6. What happens if I mess up?

If you do not file your report on time, fail to provide an accurate report, or falsify the report, the CTA allows the government to deliver a range of fines. Each violation can range from $500-$10,000 in fines and may even result in jail time for the most severe situations. However, for minor mistakes, the CTA currently allows you 90 days to correct your filing. We can anticipate that a lot of agencies will need this grace period to correct any issues related to filing the appropriate information with FinCEN.

7. Can my attorney or accountant handle this for me?

Yes, they can – with your cooperation in providing accurate and timely information. Check in with your advisor to see if their office provides this service, and make sure you respond promptly to any of their requests for information to ensure all applicable deadlines are met.

If you have any questions, we’re happy to help answer them. The Corporate Transparency Act will be new for all of us, and we are here to help guide you along the way.