After years of delays, the first stage of the Corporate Transparency Act (CTA) goes into effect on January 1, 2024. It imposes a new federal filing requirement for most corporations and limited liability companies (LLCs).
The CTA’s purpose is to prevent the use of anonymous shell companies for money laundering, tax evasion, and other illegal purposes. But it applies to honest business owners as well as criminals.
As specified in the CTA, any person who willfully violates the reporting requirements may be subject to a penalty of $500 a day, as long as the violation continues. They, may also be subject to up to a $10,000 fine and up to 2 years in prison.
The CTA does not apply to all new and existing businesses. It applies only to entities such as corporations, LLCs, and others formed by filing a document with a state secretary of state or similar official. It does not apply to sole proprietors.
Some businesses are exempt, including:
Note that the exemption for large businesses may apply to updates but not to the initial formation because there is no prior-year tax return.
The CTA’s purpose is to compile a massive government database containing the identities and contact information of the “beneficial owners” of most types of business entities. Beneficial owners are the humans who own or control at least 25% of the reporting company’s ownership interest or exercise substantial control over the entity. Examples of this include senior officers (president, CEO, CFO, etc.), member of the board of directors, or an individual who has the authority to appoint or remove board members and/or the authority to dictate important business decisions.
For most reporting companies, identifying the beneficial owners is simple. For example, a three-member LLC in which each member has a one-third ownership interest has three beneficial owners. Identifying beneficial owners for reporting companies with complex ownership structures can be more difficult.
If you are an existing business, you have until January 1, 2025, to file the beneficial owner information report with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN)—the Treasury Department’s financial intelligence unit.
If you form a new business in 2024, you must file within 90 days of receiving notice that the registration/creation is effective.
In both instances, the report must contain the following for each beneficial owner:
You must provide similar information for the people who filed the documents to form the entity (Company Applicants), such as the articles of incorporation or articles of organization for an LLC. Although accounting and law firms fall under the exemption for reporting companies, they may still be company applicants.
Any existing business formed before January 1, 2024, is not required to provide information on company applicants.
The beneficial owner information report is filed online at a new federal database called BOSS (an acronym for Beneficial Ownership Secure System). You cannot file until January 1, 2024. You do not pay any filing fees. The information in the BOSS database is strictly for use by law enforcement, the IRS, and other government agencies. FinCEN does not disclose the BOSS information to the public.
BOSS reporting is separate from your state and local filings when forming a new business entity. But from now on, filing the BOSS report must become a routine part of creating most new business entities.
If you want my help with your BOSS reporting, please contact our office and ask for our Partner Stephen Halko-Sheehan, CPA.
The Taxpayer First Act of 2019, enacted July 1, 2019, authorized the Department of the Treasury and the IRS to issue regulations that reduce the 250-return requirement for 2023 tax returns. However, the e-file threshold for returns required to be filed in 2023 remains at 250. The e-file threshold of 10 is effective for returns required to be filed on or after January 1, 2024.
Pass-through entities (PTE) that qualify are generally S corporations, partnerships and multi-member LLCs which are taxed as S corporations or partnerships. C corporations, single member LLCs, sole proprietorships, and trusts (in most states) are not eligible.
The IRS is offering a way for small businesses to potentially avoid any and all interest and penalties by withdrawing their claim. Specifically, small businesses that sent in an ERC claim that is still being processed can withdraw their claim and avoid the possibility of getting a refund for which they are ineligible. If you used an outside firm to obtain your Employee Retention Credit and have concerns about whether they adequately vetted your claim, now is a good time to contact our office to take a second look.
Massachusetts taxpayers are now able to claim a state income tax deduction for charitable donations made in taxable years beginning on or after January 1, 2023. This deduction is available against part B adjusted gross income, even for taxpayers who do not itemize their deductions on their federal income tax return.
Last week, amidst continued confusion of the RMD rules of the road, the IRS announced a delay in the final regulations for inherited IRA RMDs to 2024. In addition, the agency also extended the 60-day rollover of certain plans distributions to September 30, 2023, offering relief for those born in 1951 that received a distribution before July 31, 2023 to roll that taxable distribution over into an IRA, avoiding the taxation of that amount.
The IRS has an aggressive plan for the audit of the Employee Retention Credit claims in an effort to target unscrupulous credit companies encouraging businesses to take aggressive or fraudulent positions regarding the credit. We recommend that all of our clients who did not use our office to determine eligibility for the credit look at the backup under the above list to ensure that they are prepared for any future audit.
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