Page 16 - Southern Exposure - September '24

Page 16, Southern Exposure 2 SPACES

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CTA Imposes New Small Business Reporting

Requirements For 2024

By Anné Desormier-Cartwright, JD.

Small business owners Small business organizations such as the National ● have more than 20 full-time U.S. employees;
will have one more item Small Business Association (NSBA) and the National ● filed a previous year’s tax return showing more than
on their compliance to-do Federation of Independent Businesses (NFIB) oppose the $5 million in gross receipts or sales;
list when the Corporate CTA, calling it cumbersome, intrusive, overly punitive, ● have an operating presence at a physical U.S. office
Transparency Act (CTA) and unconstitutional. NSBA states that small businesses location;
takes effect next year. are unfairly impacted because they usually do not have ● operate in a regulated industry, such as banking,
The CTA, enacted as compliance teams or staff attorneys. utilities, or insurance, that already imposes similar
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part of the Anti-Money Eighty percent of the small businesses surveyed reporting requirements; or
Laundering Act of 2020 by NFIB are against the new reporting requirements, ● are subsidiaries of exempt organizations.
(AMLA), places new which NFIB claims are unclear. NFIB notes that each The exemptions, which generally include larger
reporting requirements state has different standards and practices for business companies that are already subject to regulation, underline
on many business entities entity formation, potentially leading to uncertainty about the primary purpose of the CTA: to combat money
to expose illegal activities, including the use of shell whether a business must report to FinCEN. For example, laundering and other illicit activities conducted via small,
companies to launder money or conceal illicit funds. some states require sole proprietorships and general private, and anonymous shell companies.
Around 30 million small businesses will be impacted partnerships to register with state agencies, while other What Information Must Be Provided In The Reports?
by the law, which will establish a federal database of states do not. The CTA requires three categories of information to
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information, furnished by “reporting companies,” that Does The CTA Require My Business To Report? be reported: company, owners, and applicant.
will be accessible to certain authorities and organizations. The CTA applies to companies that are created by ● Domestic reporting companies created before
A final rule has been issued stating how the new filing a document with a state authority. Typically, this January 1, 2024 must provide information about the
law will be implemented to help businesses understand includes corporations and limited liability companies. company and its beneficial owners.
whether the law applies to them, how to comply, and Depending on the state, it could also include limited ￮ Beneficial owner is defined in the CTA as an
which agencies will have access to the information they partnerships, professional associations, cooperatives, individual who exercises “substantial control” over the
must report. CTA violations carry civil and criminal real estate investment trusts, and trusts. In addition, the reporting company or has an ownership interest of at least
penalties, including imprisonment. CTA applies to non-U.S. companies that are registered to 25 percent. Company senior officers, directors, and others
Why Was The CTA Passed? operate in the United States. who make significant decisions on behalf of the company
The CTA was passed as part of the National Defense NFIB estimates that, based on these rules, 30 may meet this statutory definition of “substantial control,”
Authorization Act for Fiscal Year 2021. It directs the U.S. million small businesses will have to report to FinCEN. although the broad definition may cause confusion in
Department of the Treasury’s Financial Crimes Enforcement However, the CTA exempts around two dozen categories some instances.
Network (FinCEN) to gather information from private of companies, including companies that
companies about their owners and controlling persons. ● are publicly-traded; Elder Estate Planning on page 17
Acting Director Himamauli Das said, “FinCEN is taking
aggressive aim at those who would exploit anonymous
shell corporations, front companies, and other loopholes
to launder the proceeds of crimes, such as corruption, drug
and arms trafficking, or terrorist financing.” 2
To counter the risks allegedly posed by anonymous
shell companies, the CTA mandates the creation of a
national registry that contains certain information about
business entities that are formed by filing a document
with a state’s secretary of state or similar office.
What Does The CTA Require?
Effective January 1, 2024, the CTA requires that certain
businesses disclose to FinCEN information about the
company, its beneficial owners and, in some cases, the
company applicant.
Reporting companies—defined as any company with 20
or fewer employees that is formed by filing paperwork with
the Secretary of State or equivalent official—that are created
or registered prior to January 1, 2024, have until January 1,
2025, to file an initial report; reporting companies created
or registered after January 1, 2024 and before January 1,
2025, will have 90 days after creation or registration to file
a report. Entities created on or after January 1, 2025 will
have 30 days to submit the reports to FinCEN.

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