New Reporting Requirement for Small, Medium Businesses

10.09.2023
Small Business

The following article was first posted in the Insights section of Marcum’s website. It is reposted here with permission.


The Corporate Transparency Act goes into effect on Jan. 1, 2024. The CTA creates an additional reporting requirement for most businesses incorporated in, or operating in, the U.S.

This is a new requirement, and every business in the U.S. needs to consider how the CTA applies to them.

On Sept. 18, 2023, the Financial Crimes Enforcement Network released reporting guidelines in relation to the CTA.

In brief, the CTA requires certain businesses to report information about their owners, officers, and controlling persons to FinCEN.

The CTA applies to corporations, limited liability companies, and other business entities created in or registered to do business in the U.S.

Single-member LLCs and other business entities that may be disregarded or treated as pass-through entities for tax purposes will still be subject to the CTA reporting.

Reporting Exceptions

There are exceptions from this new reporting regime, although these are generally for entities with significant existing federal reporting obligations.

There are exclusions for publicly traded corporations, banks, pooled investment vehicles, and large operating businesses that meet all the following criteria:

  1. More than 20 employees;
  2. More than $5 million annual gross revenue; and
  3. Has a physical presence at a business office in the U.S.

The CTA is expected to impact approximately 32.6 million small and medium-sized businesses in 2024.

Generally, companies will need to report any individual who, directly or indirectly, exercises substantial control over the reporting company.

When an individual has a 25% or greater ownership interest, they should have considerable control over the entity. Multiple people may need to be reported for any one company.

Beneficial Ownership

For existing companies, the beneficial owner information must be provided to FinCEN before Jan. 1, 2025.

From January 1, 2024, new companies must report the beneficial ownership information within 30 days of forming the new LLC or corporation.

In addition, any changes to beneficial ownership, name, or address must also be reported within 30 days. There is no annual reporting requirement.

The penalties for failure to comply with these requirements potentially include:

  • A felony conviction
  • A $500 daily penalty up to $10,000
  • Up to two years of prison

While simple in theory, applying these rules is likely to become very complex, especially for businesses owned by foreign entities, non-business entities like trusts, and multi-tiered ownership structures.


About the author: Ryan Dudley is a partner in Marcum’s international tax group, specializing in developing cross-border commercial structures and financing strategies to optimize international operations and transactions.

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