This Law Poses a Big Threat to Business Owners in 2024
Effective January 1st of 2024, the Corporate Transparency Act, or CTA, will be put into effect. For the majority of American business owners, this should be seen as a massive threat to their company.
It’s been interesting to see the progression of the CTA’s announcement. Over the past several years there was a “too bad to be true” attitude about it; leading to most people thinking of it as a hoax, or even flat out being in denial about its implementation.
It is very real, and understanding what it will do to you as a business owner is mandatory.
As a quick overview, the corporate transparency act will require each and every “beneficial owner of such reporting company, and every individual who is a company applicant with respect to such reporting company” ¹ to file a Beneficial Owner Information document, or BOI.
“Beneficial owner” meaning someone with 25% or more interest in the company.
The BOI requires a long list of highly personal information such as your full legal name, date of birth, current address, etc.
This BOI requirement is for Limited Liability Companies, Corporations, entities taxed as an S-corp, or any entity you had to file for. Meaning sole proprietorships, trusts and partnerships are likely free and clear since they don’t require you to register with the state.
There is a lot of entities and small businesses in the United States. But what’s interesting, is besides the CTA not applying to the entities mentioned, there are 23 exemption rules for different types of companies.
Before I go through the list, remember the whole point of the CTA is to
“enhance law enforcement’s ability to investigate, prosecute, and disrupt the financing of international terrorism, other transnational security threats, and other types of domestic and transnational financial crime.” ²
The following are exempt from the Corporate Transparency Act:
Securities reporting issuers,
Governmental authorities,
Banks, Credit unions, Depository institution holding companies,
Money service businesses,
Brokers or dealers in securities, Securities exchanges or clearing agencies,
Other exchange act registered entities
Investment companies or investment advisers,
Venture Capital fund advisers, Insurance companies, state licensed insurance producers, Commodity Exchange Act registered entities,
Accounting firms,
Public Utilities, Financial market utilities, Pooled investment vehicles,
Tax-exempt entities, Entities assisting a tax-exempt entity, Large operating companies,
Subsidiaries of certain exempt entities,
and inactive entities. ³
With those criteria alone, an estimated 4 million entities will be exempt by the time the CTA goes into effect.
This is FinCEN’s estimation, and by their descriptions on some of the exempt entities outlined, such as “companies that filed… pursuant to the Securities exchange Act of 1934… in year 2021,” “requested comment… did not receive a response” and “approximately 231,000 employers’ tax filings in 2019,” ⁴ that number may not be entirely accurate.
There’s also a chance entities that should technically be in the exempt category, are not, due to inconsistencies with their conditions.
“entities considered “inactive” … may not be exempt from reporting obligations due to the lack of information to reliably estimate which… entities are, in fact, no longer actively engaged in business.” ⁵
Governmental authorities are exempt because the FinCEN assessed that “governmental authorities’ formation or destruction is not connected to economic growth.” ⁶ But in the case that it is? Who knows.
While the CTA may look like a beast, the truth is that this Beneficial Owner report will not be publicly available. If anything the CTA is showing signs of being nothing more than a government data mine that keeps actual suspect companies out of the spotlight. Now more than ever is the right time to invest in a team of professionals that can properly put a plan in place that will not only keep your name hidden and assets protected, but also serve to reduce your tax burden. Maybe this won’t aid plaintiffs in finding information about you, but nobody wants this vulnerable of information under a giant magnifying glass.
Our team is made exclusively of attorneys and CPAs for this reason, and with the CTA in mind, new strategies are evolving.
If you have more questions on the topic please reach out to me on LinkedIn or the email found on my publication’s page. Thanks for reading.
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ALL INFO GIVEN IS FROM EXTERNAL STUDY AND CONTRIBUTIONS FROM LICENSED ATTORNEYS, CPAs, AND PREVIOUS IRS EMPLOYEES.
I AM NOT A LICENSED ATTORNEY OR CPA.
¹²³⁴⁵⁶All Footnotes cited are from the Federal Register Document p.59498–59596
