The first stage of the Corporate Transparency Act (CTA)

The first stage of the Corporate Transparency Act (CTA) goes into effect on January 1, 2024

After years of delays, the first stage of the Corporate Transparency Act (CTA) goes into effect on January 1, 2024. It imposes a new federal filing requirement for most corporations and limited liability companies (LLCs) formed in 2024 and later.

The CTA’s purpose is to prevent the use of anonymous shell companies for money laundering, tax evasion, and other illegal purposes. But it applies to honest business owners as well as criminals.

The CTA does not apply to all new businesses. It applies only to entities such as corporations, LLCs, and others formed by filing a document with a state secretary of state or similar official. It doesn’t apply to sole proprietors.

Some businesses are exempt, including

• large businesses—businesses with more than 20 full-time employees and $5 million in receipts on their prior-year tax return,

• certain businesses already heavily regulated by the government, such as banks and insurance companies,

• nonprofits, and

• several others.

Note that the exemption for large businesses may apply to updates but not to the initial formation because there is no prior-year tax return.

The CTA’s purpose is to compile a massive government database containing the identities and contact information of the “beneficial owners” of most types of business entities. Beneficial owners are the humans who own or exercise substantial control over the entity.

For most reporting companies, identifying the beneficial owners is simple. For example, a three-member LLC in which each member has a one-third ownership interest has three beneficial owners. Identifying beneficial owners for reporting companies with complex ownership structures can be more difficult.

Here’s what happens if you form a new LLC or corporation in 2024. Within 90 days of formation, you must file the beneficial owner information report with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN)—the Treasury Department’s financial intelligence unit. The report must contain the following for each beneficial owner:

• Full legal name

• Date of birth

• Complete current residential street address

• A unique identifying number from a current U.S. passport, state or local ID document, driver’s license, or foreign passport

• An image of the document that contains the unique identifying number

You must provide similar information for the people who filed the documents to form the entity, such as the articles of incorporation or articles of organization for an LLC.

The beneficial owner information report is filed online at a new federal database called BOSS (an acronym for Beneficial Ownership Secure System). You can’t file until January 1, 2024. You don’t pay any filing fees. The information in the BOSS database is strictly for use by law enforcement, the IRS, and other government agencies. FinCEN does not disclose the BOSS information to the public.

BOSS reporting is separate from your state and local filings when forming a new business entity. But from now on, filing the BOSS report must become a routine part of creating most new business entities.