What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a new federal law enacted on January 1, 2021, which went into effect on January 1, 2024. It is designed to help fight against financial crimes like money laundering and tax evasion by requiring certain businesses to report detailed information about their owners. If you have a business, it’s essential to understand what the CTA is, who needs to comply, and the penalties for failing to meet its requirements. Understanding these rules is especially critical for those involved in estate planning, as business interests often play a role in the transfer of assets.

What is the Corporate Transparency Act?

The Corporate Transparency Act was passed as part of the Anti-Money Laundering Act of 2020. Its goal is to ensure that businesses are transparent about who controls and profits from them. This is accomplished by requiring certain companies to report the personal details of their beneficial owners to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). Beneficial owners are individuals who own at least 25% of the company or have significant control over it.

The primary purpose of the CTA is to prevent individuals from hiding behind anonymous companies to engage in illegal activities, but the law also places new responsibilities on law-abiding business owners who must comply to avoid penalties.

Who Must File Under the Corporate Transparency Act?

If you own a corporation, limited liability company (LLC), or similar entity, chances are you need to comply with the Corporate Transparency Act. Businesses, including small and family-owned companies, that are formed in the United States or registered to do business in the U.S. must report information about their beneficial owners.

There are some exceptions to this rule, including large companies with more than 20 full-time employees, over $5 million in revenue, and a physical office in the U.S. Heavily regulated businesses like banks and insurance companies are also exempt from reporting.

For smaller companies or family-run businesses, understanding if you need to file is crucial. Non-compliance could lead to significant fines or legal complications. It’s best to consult with a knowledgeable attorney to determine if your business falls under the CTA’s reporting requirements.

What Information is Required?

Businesses required to file must submit key information about each beneficial owner to FinCEN.
This includes:

• The owner’s full name
• Date of birth
• Current residential address
• Unique identification number, such as a passport or driver’s license number

This information must be updated within 30 days if there are any changes in ownership. Keeping accurate records and ensuring they are submitted on time is crucial, as failure to do so can result in severe penalties.

Penalties for Non-Compliance

Failing to comply with the Corporate Transparency Act can lead to harsh penalties. Businesses that do not file or provide inaccurate information face civil and criminal consequences. The civil penalties for non-compliance can be as high as $500 for each day the business is out of compliance. Over time, this can add up to significant sums.

In more serious cases, such as when a business intentionally provides false information, criminal penalties may apply. These penalties can include fines up to $10,000 and even imprisonment for up to two years.

Because the penalties are severe and the deadlines are approaching, businesses should act now to ensure they meet all the requirements of the Corporate Transparency Act. The consequences of non-compliance can create long-term issues, not only for business owners but also for their heirs if the business is part of an estate.

The Impact of the Corporate Transparency Act on Estate Planning

The Corporate Transparency Act has significant implications for estate planning, especially if your estate includes business interests. Many individuals incorporate businesses into their estate plans to ensure a smooth transfer of assets after death. However, if the business is not compliant with the CTA, it could cause legal complications for your heirs.

For example, if your business is held in a trust or other legal entity, you may still need to report under the CTA. Even though trusts are often created to maintain privacy and avoid probate, the law’s reporting requirements may still apply to businesses owned by the trust. Non-compliance can lead to fines, penalties, and additional legal challenges for your beneficiaries.

It’s essential to review your estate plan with an attorney familiar with both estate planning and the CTA. This will help ensure your business assets are protected and transferred without unnecessary complications. If your business is part of your estate plan, the Corporate Transparency Act adds a new layer of legal responsibility that must be addressed.

For more information about how business interests are handled in estate plans, check out our free guide on estate planning.

Deadlines and the Importance of Compliance

If your business was formed or registered after January 1, 2024, you must submit your first report to FinCEN within 30 days of forming the business. For businesses formed before that date, the deadline to file is January 1, 2025.

It’s crucial to act now to avoid missing these deadlines. Filing late or failing to file can result in costly fines and other legal problems, making it essential to ensure your business is compliant well before the deadline. Waiting until the last minute could lead to mistakes that could be costly to fix.

Taking action now will not only protect your business but also prevent problems for your heirs if the business is part of your estate.

Protect Your Legacy: Don’t Let the Corporate Transparency Act Catch You Off Guard

The Corporate Transparency Act places new responsibilities on business owners that are too important to ignore. Failure to comply can result in hefty fines and even criminal penalties. Beyond that, ensuring your business is compliant with the CTA is critical to safeguarding your estate and protecting your heirs from potential legal headaches.

At Estate Planning & Elder Law Services, we’re here to help you navigate these new requirements. Whether you need assistance with Michigan probate and trust administration or broader estate planning, our experienced attorneys can guide you every step of the way. Contact us today for a consultation, and let us help protect both your business and your family’s future.