The Corporate Transparency Act (CTA) mandates all legal entities, primarily corporations and LLCs, to disclose their ownership to FinCEN, with specific exemptions for large operating companies. Its purpose is to enhance U.S. national security and financial transparency, with penalties for noncompliance including civil fines and criminal charges. The CTA takes effect for new reporting companies in 2024, requiring initial filings within 90 days of creation, and all companies must update ownership information with FinCEN within 30 days of any changes.

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CORPORATE TRANSPARENCY ACT
What is the Corporate Transparency Act and who does it apply to?
• The Corporate Transparency Act (the “CTA”) requires all legal entities (known as
“reporting companies”) to disclose their ownership to a federal agency known as
FinCEN.
• Reporting companies will almost always be corporations and LLCs.
• There are number of exemptions to the CTA.
• The most exemption that could apply to your clients is for a “large operating
company.”
• An entity qualifies as a large operating company if it satisfies each of the
following three criteria:
1. Employee test. A large operating company must employ “more than 20 full-
time employees in the United States.” In general, an employee is considered
full-time if such individual provides at least 30 hours per week or 130 hours
per calendar month of services to the entity. Notably, employee headcounts
must be determined on an entity-by-entity basis.
2. Physical presence test. A large operating company must have an “operating
presence at a physical office within the United States.” In order to satisfy this
criterion, the entity must regularly conduct its business at a physical location
in the United States that the entity owns or leases and that is physically
distinct from the place of business of any other unaffiliated entity.
3. Gross receipts test. A large operating company must have filed a federal
income tax or information return in the U.S. for the previous year reporting
more than $5 million in gross receipts or sales on the entity’s IRS Form 1120,
consolidated IRS Form 1120, IRS Form 1120-S, IRS Form 1065 or other
applicable IRS form.
• FinCEN has estimated that there will be approximately 32 million reports filed in
2024 and an additional 5-6 million reports filed every year after that.
P. Haans Mulder, JD, MBA, MST, CAP®
, CFP®
321 Settlers Road
Holland, MI 49423
616.392.1821
phmulder@cunninghamdalman.com

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What is the purpose of the CTA?
• The purpose of the CTA is to protect U.S. national security, combat money
laundering, and promote financial transparency.
• It’s the modern day example of pursuing Al Capone for tax evasion.
What is the penalty for not complying?
• Noncompliance can result in a civil and/or criminal penalty.
• The civil penalty is up to $500 per day while the violation continues.
• The criminal penalty is up to $10,000 per violation and/or imprisonment for up to
2 years.
• Only “willful” violations will result in a penalty. In other words, an inadvertent
mistake by a reporting company acting diligently and in good faith is unlikely to
result in a penalty.
• The facts and circumstances surrounding the violation are important in
determining whether a violation is willful or inadvertent.
When does the CTA take effect?
• If a reporting company is created on or after January 1, 2024, but before January
1, 2025, then that initial report must be submitting within 90 days of its creation.
• If a reporting company is in existence on January 1, 2024, then that initial filing
must be completed before December 31, 2024.
• If a reporting company is created on or after January 1, 2025, then that initial
report must be submitting within 30 days of its creation.
Could anything change that timeline?
• The U.S. District Court for the Northern District of Alabama recently ruled that the
Corporate Transparency Act (the “CTA”) is unconstitutional.
• FinCEN has issued a statement that it will not enforce the CTA against the
National Small Business Association, those who are members of that association
as of March 1, 2024, and Isaac Winkles.

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• Reporting companies not involved in the lawsuit are still subject to the CTA and
its penalty provisions.
What does the CTA require?
• A reporting company must file a beneficial ownership report (“BOI”).
• A beneficial owner is an individual who directly or indirectly (i) exercises
substantial control over a reporting company or (ii) owns or controls 25% or more
of the ownership interests in a reporting company.
• There are four categories to evaluate if a person exercises substantial control
over a reporting company:
1. The person is a senior officer. A senior officer is any individual holding the
position or exercising the authority of: President, Chief Financial Officer,
General Counsel, Chief Executive Officer, Chief Operating Officer, or any
other officer regardless of the title who performs a similar function as these
officers.
2. The person has authority to appoint or remove certain officers or a majority of
directors of the reporting company. This means any individual with the ability
to appoint or remove any senior officer or a majority of the board of directors
or similar body.
3. The person is an important decision-maker. This is defined as any individual
who directs, determines, or has substantial influence over important decisions
made by the reporting company.
4. The person has any other form of substantial control over the reporting
company. This means any other form of substantial control over the reporting
company including new and unique ways.
• A person can meet the ownership or substantial control thresholds by a direct
relationship with the reporting company or indirectly through one or more entities,
trusts, or similar arrangements.
• The reporting company must disclose its full, legal name and any trade names,
assumed names, and “doing business as” names, the taxpayer identification
number (e.g. EIN), complete current address of the principal place of business,
and state, tribal, or foreign jurisdiction of formation.

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• The reporting company must disclose each beneficial owner’s full, legal name,
date of birth, complete and current mailing address, unique identifying number
from an acceptable identification document, and a copy of that identification
document.
• An acceptable identification document includes a U.S. passport, driver’s license
or other photo ID issued by federal, state, local or tribal government agency, or if
none of the above are available, a passport issued by a foreign jurisdiction.
• In the event any of this information changes, the reporting company is required to
update this information with FinCEN within 30 days of the change. For example,
if a beneficial owner moves to a new residential address then the address for the
beneficial owner must be updated.
• To add efficiency with initial filings and alleviate some of the burden of updating
previously filed reports, the CTA allows beneficial owners to request a FinCEN
Identifier or “FinCED ID.”
• To update information on file with FinCEN, a beneficial owner can simply update
the information on file for their FinCEN ID, which update will apply to any
information on file for a reporting company associated with their FinCEN ID.
• Using a FinCEN ID shifts some of the burden of updating previously filed reports
from a reporting company to beneficial owners.
How do you comply?
• You could file a BOI on your own. Please see this link
https://www.currentfederaltaxdevelopments.com/blog/2024/1/1/fincen-
announces-opening-of-website-to-accept-beneficial-ownership-reports
• An attorney might be able help you file a BOI.
• It’s possible, but not likely a CPA will be able to help you file a BOI.