By Mark Zinman | Zona Law
On Jan. 1, 2024, the Corporate Transparency Act (CTA) went into effect. This is a new law that was created to address money laundering. It creates reporting obligations for any owner of a business, though there are exceptions. Please note that, at this time, Zona Law does not offer services related to this new federal requirement and is writing this article for informational purposes only.
The CTA creates new reporting requirements for “beneficial owners” of certain businesses, and potentially the registered agents who created the companies. Beneficial owners are people who own or control at least 25% of the company. The beneficial owners will have to provide their address, date of birth, and some form of image from a government-issued ID to the U.S. Treasury’s Financial Crimes Enforcement Network, also known as FINCEN. This effectively creates a federal reporting requirement for small businesses. It was intended to target shell companies being used for money laundering, terrorism, and other illicit purposes. The legislation aims to remove any secrecy around owners of companies.
Existing businesses will have until January 1, 2025, to comply, but any new covered business in 2024 will have 90 days to comply. If created after January 1, 2025, businesses will have 30 days to comply. While the reporting is not onerous, it is important for companies to be aware of their obligations.
This reporting requirement is especially important for those people who invest in real estate and create various LLCs or other entities to hold their assets. For example, companies with over $5M in revenue or at least twenty (20) employees, are exempt and are not required to report. However, we are aware that many real estate investors put their properties in various LLCs that do not meet this exemption. As such, they would presumptively be required to report.
There are potential fines and penalties, including criminal penalties, for providing false information and non-compliance. It is important to note that a lawsuit has been filed to challenge the validity of the law, but the law must be complied with unless it is later struck down. Unless it is struck down, the CTA represents a significant shift in the regulatory landscape for businesses in the United States.
At this time, Zona Law is not offering services related to CTA. Therefore, we do strongly suggest to clients that this may affect, to search and find a business or tax attorney that provides such services.