April 19, 2024

Prepare for the 2024 Corporate Transparency Act

Reporting Requirements and Penalties

Are you a Business Owner with questions about the 2024 Corporate Transparency Act? Or, want to know how the Act will impact your business? You are not alone.

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Join Melissa Linn, Senior Wealth Planning Strategist with Comerica Wealth Management and Cassandra Creekman, Compliance Counsel of Wyrick Robbins to hear all about the Corporate Transparency Act and answer some of the most pressing questions. 

Key Takeaways:

  • New reporting requirements for companies, beneficial owners and business applicants take effect January 1, 2024. Failure to meet these requirements may result in penalties.
  • Businesses that exist or are registered prior to January 1, 2024, will have one year to file initial reports, while businesses created or registered beginning January 1, 2024, will have 90 days after creation or registration to file the report.
  • For reporting companies created or registered on or after January 1, 2025, the initial report is due 30 calendar days after the entity is created or registered.
  • Work with a professional advisor to identify the full impact of The Corporate Transparency Act on your company or business holdings.

On January 1, 2024, millions of U.S. companies will be required to file first-time paperwork with the U.S. Department of the Treasury. Fail to comply with the reporting requirements, and you may face stiff penalties or even jail time. To better understand what is required and prepare your company to stay compliant, here is a detailed guide to The Corporate Transparency Act:

What is the Corporate Transparency Act (the “CTA”)?

The CTA, a component of the Anti-Money Laundering Act of 2020, was enacted to prevent money laundering, terrorist financing, and other illicit activities. By increasing the information reported on business entities, the CTA aims to prevent the exploitation of U.S. corporations and LLCs for criminal gain and assist law enforcement in detecting criminal activity1. The CTA takes effect on January 1, 2024. At the start of the new year, all applicable entities will have a limited timeframe to file information with the Financial Crimes Enforcement Network (“FinCEN”), a division of the U.S. Department of the Treasury.

The Corporate Transparency Act requires companies, beneficial owners and business applicants to file information with the U.S. Department of the Treasury.

Who is Required to Report?

Under the CTA, reporting companies must file information on beneficial owners and company applicants.

Reporting Company

A “reporting company” is either a domestic or foreign privately held company. A domestic reporting company is an entity that is created by the filing of a document with a secretary of state or similar office under the law of a state. A foreign reporting company is an entity formed under the law of a foreign country and registered to do business in the United States by the filing of a document with a secretary of state or similar office under the laws of a state2. Publicly traded companies already have sufficient reporting requirements and are therefore not included under the CTA.

Beneficial Owner

A “beneficial owner” is an individual who, directly or indirectly, either (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25% of the ownership interests of a reporting company. Substantial control can be exercised by an individual serving as a senior officer, who has authority to appoint or remove a senior officer, or who can direct or make substantial decisions over important matters.3

Beneficial ownership includes direct and indirect interests and includes joint ownership or any undivided interests. If an entity is owned by a trust, the beneficial owner could be the Grantor or Settlor of the trust who has a right to revoke the trust or withdraw assets, the Trustee or person holding authority to dispose of trust assets, a sole beneficiary who is the recipient of income and principal, or a beneficiary who has the right to demand distribution or withdraw substantially all assets from the trust.4

There are exclusions to the definition of beneficial owner, such as minor children, non-senior employees, and contingent beneficiaries of a trust. A full list of exclusions is included in 31 USC §5336(a)(3)(B).

Company Applicant

A company applicant is any individual who files an application to form or register an entity under the laws of a state, including the person who directed the filing. For example, if a family member files the document on behalf of a relative, both the family member and the relative are considered company applicants5.

It’s important to understand whether the CTA applies to you or not. If you’re not sure, consult with a professional advisor for more details.

What are the Reporting Requirements?

Reporting companies must submit the following information to FinCEN6:

1. Identifying information on the reporting company

a. Legal name, trade name and “DBA”
b. Address for principal place of business
c. Jurisdiction in which it was formed or first registered
d. Tax ID number

2. Identifying information on the beneficial owners and company applicants

a. Legal name
b. Date of birth
c. Current Address
d. ID number (passport, driver’s license, etc.)
e. Image of document with ID

3. FinCEN Identifier7

a. Unique identification number, useful for repeat filers

The information reported to FinCEN through these reports can only be disclosed by FinCEN to a government agency, law enforcement, or financial institutions for compliance with anti-money laundering or other diligence obligations.8 Freedom of Information Act (FOIA) requests do not cover the CTA reports, which means the reports will not be available to the public.

When are Reports Due?

For reporting companies already in existence prior to January 1, 2024, the initial report is due one year after the CTA is effective (i.e., by January 1, 2025). For reporting companies created or registered on or after January 1, 2024, the initial report is due 90 calendar days after the entity is created or registered. For reporting companies created or registered on or after January 1, 2025, the initial report is due 30 calendar days after the entity is created or registered.9

Following the initial report, if there are any corrections or changes of ownership, a new report must be filed within 30 days of the correction or change. Otherwise, there is no ongoing filing requirement. Some changes that would require a new filing include a change of address, change in senior management, or when an owner has died and the business interests pass on to new beneficiaries.

What are the Potential Penalties?

Failing to report the information required by the CTA can result in stiff penalties. These penalties include civil penalties of up to $500 per day as the violation continues, and they also include criminal penalties in the form of fines up to $10,000, imprisonment of up to two years, or both.

Failure to comply with the CTA can result in stiff penalties.

Steps to Take Now

Although there are more details to come, such as how to file the report, it is important to be aware of the new reporting obligations. To simplify the process and protect your business from penalties, make sure your company will be ready to comply beginning in 2024. If you’re a beneficial owner, you may also wish to discuss the CTA requirements with your attorney or CPA to be sure you’re ready to help fulfill these new obligations.

Navigate New Filing Requirements with Ease

At Comerica, our advisors make complex compliance requirements easy to meet. We help clients every day navigate the challenges of owning and running a business, including emerging federal laws like The Corporate Transparency Act. Contact a Comerica Wealth Advisor today to work with an industry leader who will save you time and help you navigate the CTA requirements.

1https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/
2https://www.natlawreview.com/article/corporate-transparency-act-reporting-requirements-preparing-your-company-and-other
3https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/
4https://www.federalregister.gov/documents/2022/09/30/2022-21020/beneficial-ownership-information-reporting-requirements#citation-170-p59532.
5https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/
6https://www.fincen.gov/sites/default/files/shared/BOI_Reporting_Key_Questions_Published_508C.pdf
7https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/
8https://www.americanbar.org/groups/business_law/resources/business-law-today/2021-may/the-corporate-transparency-act/
9https://www.mayerbrown.com/en/perspectives-events/publications/2023/12/groundbreaking-us-corporate-transparency-act-takes-effect-january-1

The following Notice was released by FinCen on March 4, 2024:

On March 1, 2024, in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), a federal district court in the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment, concluding that the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs. FinCEN is complying with the court’s order and will continue to comply with the court’s order for as long as it remains in effect. As a result, the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.

NOTE: IMPORTANT INFORMATION

Comerica Wealth Management consists of various divisions and affiliates of Comerica Bank, including Comerica Bank & Trust, N.A. and Comerica Insurance Services, Inc. and its affiliated insurance agencies. Comerica Bank and its affiliates do not provide tax or legal advice. Please consult with your tax and legal advisors regarding your specific situation.

This is not a complete analysis of every material fact regarding any company, industry or security. The information and materials herein have been obtained from sources we consider to be reliable, but Comerica Wealth Management does not warrant, or guarantee, its completeness or accuracy. Materials prepared by Comerica Wealth Management personnel are based on public information. Facts and views presented in this material have not been reviewed by, and may not reflect information known to, professionals in other business areas of Comerica Wealth Management, including investment banking personnel.

The views expressed are those of the author at the time of writing and are subject to change without notice. We do not assume any liability for losses that may result from the reliance by any person upon any such information or opinions. This material has been distributed for general educational/informational purposes only and should not be considered as investment advice or a recommendation for any particular security, strategy or investment product, or as personalized investment advice.

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