Is Your Business Ready for the Corporate Transparency Act on Jan 1, 2024?

In 2021, they passed the Corporate Transparency Act (CTA) to make businesses more transparent and prevent shady money stuff in the U.S. The law wants to know more about who owns what in companies.

At first, accountants didn’t really care about it. But hold on, January 1, 2024, is coming, and folks are getting worried.

Companies are scrambling to understand this CTA thing, how it messes with their business, and what they gotta tell the government. It’s a golden chance for accountants and tax pros to make more money by offering new services. So, get ready, the CTA is coming, and it’s time to learn the ropes.

Who Does the Corporate Transparency Act Affect?

The Corporate Transparency Act impacts small businesses, especially those without employees. According to the Small Business Administration, there are over 27 million small businesses known as “nonemployer firms,” and they are the main focus of this act.

Who Needs to File?

Two types of reporting companies are affected:

Domestic Reporting Companies: These are businesses like corporations and LLPs that are created under state or tribal laws.

Foreign Reporting Companies: These are entities formed under foreign country laws but registered to do business in the United States. Sole-proprietorships without a single-member LLC are not considered reporting companies.

Reporting Companies Include:

Limited liability partnerships
Limited liability limited partnerships
Business trusts
Many limited partnerships created by filing with the state or tribal office.

Exemptions Apply to:

Securities issuers
Domestic government authorities
Banks

And more entities not falling into the categories mentioned above.

So, in simple terms, if you run a small business without employees or if you’re involved in certain types of businesses, you need to be ready for the Corporate Transparency Act starting on January 1, 2024.

Who Are Beneficial Owners?

Beneficial owners can be of two types:

Those who have a big say in a company or control it, directly or indirectly.
Those who own or control at least 25% of a company’s ownership.

This is done to make sure no one slips through the cracks. The main difference is that beneficial ownership refers to ownership through capital and profit interests.

What Beneficial Owners Need to Share?

Beneficial owners must tell FinCEN:

Their name
Date of birth
Address
A unique identifier from a recognized place
A picture of that document

If someone wants to give this info to FinCEN directly, they might get a ‘FinCEN identifier’ instead of sharing all the details

Company Applicants

Company applicants can be:

The person who starts the company or registers it to do business in the U.S.
The one mainly responsible for filing the right documents.

This could be someone like an accounting professional. But remember, the report doesn’t need info about the company applicant. This is important when deciding what to discuss with a client during advisory services.

New Rules for Companies: The Corporate Transparency Act Starts on January 1, 2024

Starting January 1, 2024, companies need to follow new rules under the Corporate Transparency Act. If your company was already around on that date, you must file your first report within one year.

But if your company was created after January 1, 2024, you have 30 days from when you receive notice of your registration. However, the deadline for initial reports might extend to 90 days in 2024, as per FinCEN’s proposal.

Remember, if anything changes about who owns the company (like selling the business or merging), you have 30 days to update your report. Also, if you find out that some of the information you filed before is wrong, you have to correct it within 30 days.

How does the Corporate Transparency Act affect Tax and Accounting Pros?

The Corporate Transparency Act is about stopping money laundering and making companies more accountable. So, many companies will turn to their accounting pros for help. This means accountants have a chance to offer more services.

Accountants will need to keep company records up to date with the FinCEN database. They’ll also have to do more checks and risk assessments. Not following these rules can lead to big fines or even jail time. The fines can be anywhere from $500 to $10,000 per mistake, and you might spend up to two years in jail.

To make things easier, accountants can use tools like Thomson Reuters Checkpoint Edge to stay updated about changes in the Corporate Transparency Act and other laws at the local, state, and federal levels.

Bottom Line: Get Ready for the Corporate Transparency Act on Jan 1, 2024

Wondering how to gear up for the Corporate Transparency Act? Here’s what accountants need to do:

Be Proactive: Start early to answer client questions quickly.
Check with Clients: Ask them if they’re ready for January 1, 2024.
Define Your Scope: Clearly outline your advisory services.
Create a Checklist: Prepare a handy to-do list.
Organize Efficiently: Set up a system.

Taking a proactive approach, introducing clients to the Act, and other services is a great way to strengthen client relationships.

Embrace the Act with Confidence

Accountants deal with various risk-prone areas, from financial reporting to taxes. Now, they must also handle Beneficial Ownership Information reporting.

Invest in quality research tools like Checkpoint Edge for a smooth transition and to provide up-to-date advisory services.

The Act primarily targets small businesses in the U.S., many of which are non-employer firms. This presents an opportunity to offer advisory services and handle reporting and compliance. Reduce the admin burden for small businesses and include it in an advisory package.

Frequently Asked Questions (FAQs):

Ques 1. What is the 2024 BOI Rule?

Ans. The “2024 BOI Rule” refers to the Corporate Transparency Act’s Beneficial Ownership Information (BOI) Reporting Requirements, implemented by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This rule requires certain business entities to report information about their beneficial owners – individuals who ultimately control or benefit from the business.

Ques 2. Who is exempt from beneficial ownership reporting?

Ans. Several categories of businesses are exempt from the BOI reporting requirements, including:

Publicly traded companies: Corporations listed on major stock exchanges are already subject to similar disclosure requirements.
Certain financial institutions: Banks, credit unions, investment firms, and insurance companies already have regulations governing beneficial ownership identification.
Government entities: Federal, state, local, and tribal governments are exempt.
Nonprofit organizations: Charities, religious organizations, and other non-profits with tax-exempt status are generally exempt.

Ques 3. What is the United States Business Regulations Department Transparency Act?

Ans. There is no federal act called the “United States Business Regulations Department Transparency Act.” It’s possible you might be referring to one of the following:

Corporate Transparency Act: This 2020 law established the framework for the BOI reporting requirements implemented in 2024.
Anti-Money Laundering and Terrorist Financing Act (AML/TF Act): This act establishes broad anti-money laundering and terrorist financing requirements for various financial institutions, including customer identification measures.

Ques 4. What is a BOI in business?

Ans. A beneficial owner is an individual who:

Owns 25% or more of the equity shares or membership interests in a business;
Exercises substantial control over the business, even if they don’t own a majority stake; or
Receives financial benefits from the business through profits, dividends, or other means.

By requiring the reporting of beneficial ownership information, the BOI rule aims to combat financial crime and make it more difficult for criminals to hide their identities and activities.