If you own an LLC or corporation, there's an important new requirement you need to be aware of: the Corporate Transparency Act (CTA). By the end of 2024, you must register your business with the Financial Crimes Enforcement Network (FinCEN). Failing to do so can result in hefty penalties, including fines of $500 per day. This blog will break down what the Corporate Transparency Act entails, who it applies to, and what steps you need to take to ensure compliance.What is the Corporate Transparency Act?The Corporate Transparency Act is a law designed to combat financial crimes like money laundering, terrorist financing, and tax evasion. It requires certain companies to disclose information about their beneficial owners, i.e., the individuals who ultimately own or control the company. This information is collected by FinCEN, a bureau of the U.S. Department of the Treasury. The goal of the CTA is to increase transparency in business ownership and make it more difficult for criminals to hide their identities behind anonymous shell companies. While this is a significant step forward in the fight against financial crimes, it also means that business owners must be aware of and comply with these new reporting requirements.Who Needs to File?The requirement to file under the Corporate Transparency Act applies to "reporting companies." But what exactly is a reporting company? In simple terms, a reporting company is any entity that is created by filing a document with a Secretary of State or any similar office under the law of a state or Indian tribe. This generally includes:

LLCs (Limited Liability Companies)
Corporations
Any other entity created through a formal registration process with the state

However, not all entities are required to file. The CTA provides 23 exemptions, meaning that certain types of businesses and organizations do not need to submit a Beneficial Ownership Information (BOI) report. Here are some of the common exemptions:1. Inactive Entities:Some rules apply, but generally, if your entity is inactive and meets specific criteria, you may be exempt.2. Public Accounting Firms:These entities, often already subject to extensive reporting requirements, are exempt.3. Investment Advisors Registered with the SEC:If you’re registered as an investment advisor with the Securities and Exchange Commission, you're likely exempt.4. Large Operating Companies:Companies with more than $5 million in revenue, a physical office in the U.S., and more than 20 full-time employees are exempt.5. Insurance Companies:Entities in the insurance industry are typically exempt.6. Tax-Exempt Organizations:Nonprofits and other tax-exempt entities generally don’t need to file. It's crucial to determine whether your business qualifies for any of these exemptions. If you’re unsure, consulting with a legal or tax professional is a good idea.Deadlines and Filing RequirementsFor businesses already registered before January 1, 2024, the deadline to file your initial BOI report is January 1, 2025. However, if your business is registered on or after January 1, 2024, you have only 90 days from the date of registration to submit your initial report. It's also important to note that if there are any changes to your business, such as a change in address or ownership structure, you must update your BOI report promptly. This ongoing requirement ensures that FinCEN always has up-to-date information about your business’s beneficial owners.Consequences of Non-ComplianceThe penalties for failing to comply with the CTA are severe. If you don’t file your BOI report on time or fail to update it when required, you could face fines of $500 per day. This can quickly add up to a substantial financial burden, especially for small businesses. Beyond financial penalties, non-compliance could also damage your business’s reputation and lead to further legal complications. Given the seriousness of these consequences, it’s critical to stay on top of your filing obligations.What Happens to the Information You Provide?Once you file your BOI report, FinCEN will store this information and share it with specific entities and organizations, including:1. Select Federal Agencies:Agencies involved in law enforcement and national security may access this information to help combat financial crimes.2. Treasury Offices:Various offices within the Department of the Treasury will have access to the data to support their regulatory and enforcement activities.3. State and Local Enforcement Partners:State and local law enforcement agencies may also access the information to aid in their investigations.4. Financial Institutions:Banks and other financial institutions may request this information as part of their due diligence processes. While the CTA aims to protect privacy, the reality is that your information will be accessible to a range of entities. This makes it all the more important to ensure that the information you provide is accurate and up-to-date.Legal Challenges and EnforcementThere have been legal challenges to the CTA, with some groups filing lawsuits against its enforcement. For example, if you were part of the "National Small Business Association" as of March 1, 2024, you might not need to file the report at this time due to ongoing litigation. However, FinCEN has stated that it will continue to enforce the CTA while the legal battles play out. This means that even if you believe you may be exempt or protected by ongoing litigation, it's still wise to proceed with caution and consider filing your report.How to Get StartedIf you’re a business owner, the first step is to determine whether your company is required to file under the CTA. Review the list of exemptions carefully, and if your business doesn’t qualify for one, prepare to file your BOI report by the appropriate deadline. If your company is not currently offering an NQDC but you're interested in setting one up, talk to your employer about the possibility. Many large companies, especially in the tech sector, have already started offering these plans due to the rising W-2 salaries in recent years. For those who own their own businesses, you have even more flexibility. You can design a plan that fits your specific needs, but it's crucial to consult with a tax professional to ensure compliance with all regulations.Final ThoughtsThe Corporate Transparency Act represents a significant shift in how businesses are required to report their ownership information. While the goal is to increase transparency and reduce financial crime, the burden of compliance falls on business owners. By understanding your obligations under the CTA and taking the necessary steps to file on time, you can avoid costly penalties and ensure your business remains in good standing.