The Corporate Transparency Act: What You Need to Know

The Corporate Transparency Act: What You Need to Know

March 26, 2024

The Corporate Transparency Act (CTA) addresses the disclosure of corporate ownership and the prevention of money laundering and the financing of terrorism and other illicit acts. The CTA was signed into law on January 1, 2021.

Many of us have received mailings and emails from our estate planning attorneys and CPAs regarding changes and new mandates to the CTA. In general, CPAs will not help clients file under the CTA as it violates the scope of their professional liability policies. Attorneys will help clients file under a separate engagement letter. 

Being a business owner, I am subject to the CTA rules and recently went through the filing process and wanted to share my experience with you. For most small businesses, filing is not difficult. The process is like filing your annual report with the secretary of state’s office. 

Why CTA: Money laundering continues to be an ongoing threat to our banking system and country. Money laundering often facilitates crimes such as drug trafficking, terrorism, human sex trafficking, and rogue nation destructive activities (think countries under international sanction including North Korea, Iran, Russia). Congress and multiple Administrations have effectively targeted large multinational corporations which has caused criminals to pivot, now laundering money through smaller US entities where there historically have been less controls and supervision.

Who/What is affected by the CTA: It is estimated that 33 million small businesses would currently be affected under the CTA with an additional five million new small business entities required to meet the new reporting requirements each year. The CTA expressly targets small businesses with potentially severe penalties for non-compliance, including imprisonment of senior corporate officers.

Any entity formed by filing a document with a secretary of state or similar authority of a US state, territory, or tribal land (in Florida anyone who files on Sunbiz.org) as well as any entity formed in a foreign country that has registered to do business in a US state, territory or tribal land are subject to the new reporting requirements. Individuals who directly or indirectly own 25% or more of the company must be identified and reported on in the filing. There are numerous exemptions from reporting which are  listed as C2 on the Financial Crimes Enforcement Network (FinCEN) website or by contacting our office.

New Requirements and how to comply: The table below shows the applicable reporting deadlines to file an initial report with the Beneficial Ownership Secured System (BOSS) under FinCEN. The dates vary depending on when the Reporting Company was/is established.



Any changes to previously reported information (i.e. names, addresses, change in passport number, termination of business) must be filed within 30 calendar days of the change. Perhaps the biggest issue with the CTA is remembering to correct and update reporting on the BOSS system within the required time frames. If you sell a home and move to another one, you may remember to visit the post office to change your mail and now you MUST also log into the BOSS system to file an updated report. There are no fines or imprisonment for failing to change your address with the post office but there is if you forget to update your information on the system.

For clients who own more than one entity, you can create a FinCEN identifier. This will reduce the paperwork and data input in complying with the CTA since you can use the FinCEN identifier to prefill all of the entities. 

To comply with the reporting requirement, follow these steps:

  • Access the FinCEN website at fincen.gov/boi. Because I have an interest in more than one LLC or S corporation, I elected to get my FinCEN identifier. This process took about 10 minutes and involved basic information and uploading my driver’s license. The identifier saves time as the number itself is entered into the BOSS system eliminating the need to enter your personal information for each entity.

  • Go back to the website above (fincen.gov)and file a Beneficial Ownership Information Report (BOIR). A step by step guide to filling out the form can be found here. In general, this is not difficult—if you get to an input box that won’t fill, look at the guide or hit next. This is especially true if you have a FinCEN identifier and the system hasn’t asked you for it yet. 

Takeaways:  The intent of the CTA is laudable—who wouldn’t want to restrict the flow of illegal funds from nefarious people and entities. Although not difficult to file the initial report, it does take time (start to finish including the FinCEN identifier about an hour for the first entity—less for other entities as it follows the same flow). However, compliance with the act is extremely time consuming and I am not sure what effect it will have on money laundering. If you have a handful of entities (I have three) you can do it yourself. For entities with more complex structures (multiple owners, subsidiaries, partnerships) engaging a qualified attorney to file and maintain compliance would likely be a good use of funds relative to time and risk of doing it wrong. 

 

Note: On March 1, 2024, a federal judge ruled the CTA is unconstitutional but the SEC and FinCEN have argued that they are exempt from the ruling. While the litigation is ongoing, FinCEN will continue to implement the CTA as required by Congress.