The Corporate Transparency Act (CTA) is a significant piece of legislation that was enacted in 2021. This law was passed with the aim of enhancing transparency in entity structures and ownership to combat money laundering, tax fraud, and other illicit activities.
What is the Corporate Transparency Act?
The CTA is designed to capture more information about the ownership of specific entities operating in or accessing the U.S. market. It requires businesses to identify and document any person who holds a 25% or greater ownership interest or who exercises substantial control over the company.
Who does the Corporate Transparency Act affect?
The CTA is particularly targeted at smaller businesses. According to a recent Small Business Administration report, 27,104,006 small businesses were termed “nonemployer firms” and had no employees. Reporting companies are identified as either domestic or foreign. Domestic reporting companies are corporations, LLPs, or any other entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. Foreign reporting companies are a corporation, LLCs, or other entity formed under the law of a foreign country that is registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office.
When do reports need to be filed for the Corporate Transparency Act?
The effective date of the Corporate Transparency Act is fast approaching on January 1, 2024. Companies are looking for more information on the CTA, how it affects their operations, and what the details of the reporting requirements are.
The Impact of the Corporate Transparency Act
The CTA is intended to provide law enforcement with beneficial ownership information for the purpose of detecting, preventing, and punishing terrorism, money laundering, and other misconduct through business entities. However, it places a significant burden on small businesses required to collect beneficial ownership information.
The Corporate Transparency Act marks a new era of business transparency. While it presents challenges for businesses, particularly small businesses, it also provides a unique opportunity for accounting firms and tax accounting professionals to enhance their revenue streams by diversifying their service offerings. As the effective date approaches, businesses must prepare to comply with the new reporting requirements of the CTA.