Understanding the Corporate Transparency Act (CTA)

The Corporate Transparency Act (CTA) was enacted in 2021 and became effective January 1, 2024. The purpose of the CTA is to increase the transparency of beneficial ownership of domestic and foreign businesses (reporting companies) in order to combat, among other things, money-laundering and other illicit activities that may be carried out through the use of shell companies or other activities involving the purposeful obfuscation of ownership of an entity.

It is important to understand the CTA and its key aspects so that you can meet and confer with your legal counsel to address any compliance obligations that may apply to you. This is not intended to constitute legal advice and should not be construed as such. We encourage you to contact your legal counsel to review your obligations under the CTA, if any. Please note that Citrin Cooperman is not able to provide advice or filing assistance with respect to the CTA.

Entities that must be reported under the CTA

Reporting companies include corporations, limited liability companies, limited liability partnerships, and business trusts, among other types of legal entities, that are:

• Created through the filing of organization documents with the Secretary of State or similar office of any state or Indian tribe; or
• Formed under the laws of a foreign jurisdiction and registered to do business in any state or tribal jurisdiction by reason of having filed a document with the Secretary of State or similar office of any state or Indian tribe.

The CTA applies to legal entities rather than natural persons. Therefore, sole proprietorships that are not carried out through a limited liability company are not considered to be reporting companies. There are 23 types of entities exempt from reporting, including issuers of securities, banks, and domestic governmental authorities. For a complete list and additional information about reporting companies, see the Financial Crimes Enforcement Network (FinCEN)’s Small Entity Compliance Guide.

Beneficial owners must report certain information to FinCEN, a bureau of the U.S. Department of the Treasury. A beneficial owner is an individual that directly or indirectly:

• Exercises substantial control over a reporting company; or
• Owns or controls at least 25% of the ownership interests of a reporting company.

If an ownership interest in a reporting company is held through a trust, individuals, including grantors, beneficiaries, and trustees, may be considered to own or control ownership interests through the trust, depending on the specific circumstances. Analyzing whether a trust can itself be a reporting company or whether beneficial ownership in a reporting company is held through a trust can be complex and should be evaluated in consultation with legal counsel.

Reporting deadlines for the CTA

Entities that meet the definition of a reporting company are subject to the following reporting deadlines:

Once an initial report has been filed, the reports must be updated within 30 days of a change of beneficial ownership resulting from a specified event or within 30 days of the discovery of an error with respect to a report that was previously filed. Noncompliance with the CTA can carry considerable penalties that range from $500 to $10,000 per violation, as well as potential imprisonment.

Individuals responsible for CTA reporting

Generally, the person with the responsibility to disclose the required beneficial ownership information is the individual who actually files the document that creates the legal entity or registers the foreign entity to do business or the individual that is primarily responsible for directing another individual to file the documents.

Security of information reported under the CTA

The information will be collected via the Beneficial Ownership Secure System (BOSS). BOSS is intended to be secure and confidential, with access limited to law enforcement, government agencies, and similar authorized users. The registry is not public.

Should you have any questions, please reach out to your tax professional or a member of your engagement team.