New Government Reporting Requirements for LLCs

A new federal law, the Corporate Transparency Act (CTA), which becomes effective January 1, 2024 will impact almost all LLC’s and small corporations in the United States. Businesses now have new reporting requirements annually, and these changes may lead to new challenges for Florida small business owners. Keep reading to understand the act’s nuances, the potential impacts on businesses, and how working with an estate planning law firm now can provide clear guidance for your business to ensure you remain in compliance with the new federal law.

Understanding the Corporate Transparency Act (CTA)

A component of the The Anti-Money Laundering Act of 2020, passed on January 1, 2021, the Corporate Transparency Act (CTA) law goes into effect on January 1, 2024.  The CTA creates a new national database of companies in the United States to identify the humans behind the companies.  These people are called owners, who are referred to in the law as ‘control persons’ or ‘beneficial owners,’ i.e., the individuals who ultimately own or control the company.  Small business owners are likely to see the biggest impact of the new Act, yet this new regulation will affect millions of companies, both domestic and foreign.

Jacksonville Estate Lawyer Bill O’Leary explains the impacts of the new CTA in his video, “Thirsty Thursday: Newsflash! New Government Reporting Requirements for LLCs.”

What is the Purpose of the Corporate Transparency Act (CTA)?

The goal of the new legislation is to help the federal government find out who truly owns business entities and their assets.  Intended to combat activity such as money laundering, tax evasion, terrorism, and other sorts of financial crimes, the CTA will help identify bad actors, both foreign and domestic, who use the anonymity provided by company structures to pursue criminal activities.  By creating a searchable national database of business organizations and entities, law enforcement can more easily identify people conducting financial crimes through their business.

Which Types of Companies Will Be Required to Report Under the CTA?

Any business entity, such as corporations or limited liability companies, created by a document’s filing with the Florida Secretary of State will be required to report under the CTA.  So, even businesses that are not engaging in financial criminal activity must submit a report.  This includes both domestic and foreign entities. However, certain entities like banks, insurance entities, and charitable organizations are exempt from these requirements. Large corporations consisting of 20 or more full-time employees, $5 million in gross sales, and an office location in the U.S. are also exempt from the reporting requirements.

What Type of Information Will Need to Be Reported?

Companies are expected to report online details about the company and the individual(s) holding direct or indirect control of the business entity, what’s known as ‘beneficial owners’ and senior officials.  The organization managing the online database is the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). Reports will have to be submitted to the (FinCEN) portal.  Companies must submit personal information like full names, birth dates, and addresses of beneficial owners or senior officials. The FinCEN is not part of the Internal Revenue Service (IRS). Although the information provided will not be public, it will be available to various entities within the federal government.

What Potential Issues May Arise for Small Business Owners?

The problem is that this new law is going to affect virtually all small family businesses, even LLCs and other entities that are designed just to hold a piece of rental real estate such as a rental property. Even small ‘mom and pop’ operations or entities that are not conducting any other business activities will be subject to the self-reporting requirement of the CTA. So, even if a business entity is disregarded for federal income tax purposes, such as a single member LLC with one member owner, will have to file reports with the government.

Deadlines, Penalties, and the CTA

For companies established before January 1, 2024, the filing deadline extends to January 1, 2025. Those formed post-2024 must file within 90 days after receiving notice that the company’s creation or registration is effective, whichever is earlier. Non-compliance or misinformation can lead to steep fines, civil penalties (fines up to $500 per day up to a total of $10,000), and criminal penalties (up to and including imprisonment).

Next Steps: Consult with Legacy Planning Law Group

Considering the looming changes for businesses, it’s prime time to review your business entity’s status to understand what your reporting requirements are for the CTA.  Florida Business Planning Lawyer Bill O’Leary will help you navigate this new reporting requirement for businesses.  If you are a business owner, schedule a free call with our team to learn whether your entity is seen as a reporting company under the CTA. In addition, it’s important to discuss ways you can protect your business through comprehensive estate or succession planning.