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The Corporate Transparency Act: What does a CPA need to know?

 

More and More Reporting to the U.S. Department of Treasury

In a seemingly never-ending quest to crack down on money laundering, funding of terrorism, and tax evasion, our federal government’s latest attempt to prevent individuals from concealing their business holdings through shell companies and complex ownership structures is a doozy: the Corporate Transparency Act (the “CTA”).

Curiously, the CTA was enacted without much fanfare.  It was embedded in legislation passed as part of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, (Pub.L. No. 116-283 (H.R. 6395), 134 Stat. 338, 116th Cong. 2d Sess.), with the CTA found in new § 5336 to Title 31 of the United States Code.

As we get closer to the date that reporting requirements start – January 1, 2024 – the enormity of this law is coming into focus for attorneys and other professionals.

 

What is the CTA, in a nutshell?

The CTA and its associated regulations (Treasury, FinCEN, Beneficial Ownership Information Reporting Requirements, 87 FR 59498, Sept. 30, 2022) impose a duty on “Reporting Companies” to obtain, certify, and file “Identifying Information” regarding the entity’s “Beneficial Owners,” and its “Company Applicant” to the U.S. Treasury, through the Financial Crimes Enforcement Network (“FinCEN”). These new requirements take effect on January 1, 2024, and carry significant penalties for non-compliance.

 

Why Should a Tax Practitioner Care about the CTA?

Tax accountants are well accustomed to the myriad of tax filings required to be filed with the U.S. Department of Treasury.  Notably, however, reporting under the CTA is not a requirement for taxpayers; rather, it is a requirement for individuals who are beneficial owners of reporting companies.  So, while CTA reports are filed with the U.S. Department of Treasury, they are filed with FinCEN and not the IRS.  CTA reports are categorically not tax forms and have nothing to do with tax reporting.

So, why should a CPA care about the CTA? Here are a few reasons:

  1. A CPA may be a client’s first thought of who can help them comply with their duties to report information to the U.S. Department of Treasury under the CTA.  It should be noted, however, that the AICPA has cautioned Congress that there is a debate amongst accounting and finance professionals as to whether providing advice regarding requirements under the CTA may be considered the “unauthorized practice of law.”
  2. CPAs assist clients with tax planning, which may involve complex ownership structures for completely legitimate and proper purposes.  Not infrequently, taxpayers take certain comfort in not being identified in the tax form being filed.  For instance, if a K-1 is issued to an irrevocable trust that is the owner of the partnership filing the return, the beneficial owner of the trust is not necessarily identified on the K-1.  Such anonymity may not be possible under the CTA.  So, tax planners that have touted anonymity as being a benefit to tax planning may want to advise their clients that the glory days are over.

 

Conclusion

At least for now, January 1, 2024, is still the date that CTA reporting requirements come into effect.  Unless the legality of the CTA is successfully challenged or Treasury delays the effective date, now is the time to be prepared for CTA compliance.

Learn more about the CTA and its potential implications for your business by visiting our CTA resource page.

 

About the Business & Corporate Transactions Group

Successful businesses share four common traits: visionary leadership, sound planning, excellent execution and responsive legal counsel. We help businesses and individuals across a range of industries build success and navigate the relationships and transactions necessary to start, nurture and grow.

We begin each engagement with uncommon attention to learning your goals and unique situation. We listen to you, your business and legal advisors, and even opposing counsel. Why? Because our experience has shown us that it’s the best way to provide the objective analysis and creative solutions you need to find success.

Our collaborative approach provides an uncommon experience that leverages the insight and deep industry knowledge of the full firm as we work across our services and practice areas, fueling insight and creativity, and driving results that propel our clients’ interests further than ever.

About Capes Sokol

At Capes Sokol, we strive to find the best solutions to our client's legal problems and to turn even complex challenges into opportunities. That’s why each member of our St. Louis-based team is committed to looking at every issue from multiple angles. We bring teamwork and collaboration across disciplines. We take the time to listen and understand our clients' industries, problems and challenges. And then we apply deep legal knowledge, experience and creativity all leading to strategies and execution that just make sense.

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