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CTA Is Here (Part 1)

The Corporate Transparency Act (CTA) is here and now in full force and effect.  In 2021, Congress passed this legislation that was signed into law by President Biden but did become official and enforceable until January 1, 2024.  This is the most broad, overreaching, and invasive federal reporting statute in the history of our government that squarely and directly impacts every small business owner, entrepreneur and real estate investor you know. 

This is the first in a series I will be doing regarding the CTA.  If you are a real estate investor, agent, broker, operator, or anyone else who owns a business, here is what you need to know.

  1.  Which of your entities are considered “reporting entities” under the CTA?
  2.  Who are the beneficial owners of each entity?
  3. What disclosure information is required?

Using that information, you are now required to timely file your disclosures with the Financial Crimes Enforcement Network (FCEN).

I realize that is a heavy load of information, so let me break this down for you into bite-sized bits of information.  Let’s start by looking at what entities are considered to be “reporting” companies under the CTA.  The types of entities that must report include C-corporations, Sub-S corporations, LLCs taxed as corporations or partnerships, and LLCs treated as disregarded or pass-through entities. 

There is a minimum threshold for the entity of owning, possessing, or controlling $1,000 or more.  This means if you have an entity, for example an LLC, that has only been filed with the Secretary of State but does not yet have a tax ID number and does not yet own or control anything, that entity is not considered to be a reporting company yet.  When that entity does get a tax ID number and has control or ownership of $1,000 or more of assets, whether directly or indirectly, that entity will then need to report.

What must be reported?  Any person who has either substantial control of or an ownership interest of 25% or more in an entity must be disclosed.  “Ownership interest” as defined under the CTA is incredibly broad and covers all sorts of arrangements, including, but not limited to, equity, certificates, interest in joint ventures, convertible interest, and bearer shares.  Any individual who owns or controls an ownership interest through various means such as trusts, beneficiaries, grantors, intermediaries, or blocker MUST reported.

The CTA aims to ensure that reporting companies identify all individuals who have substantial control and those who own or control at least 25% of that entity.  I know what some of you are thinking.  “Well, Jeff, I’ll never own more than 24%, and I’ll stay under that 25% threshold.”  That’s fine, as long as you don’t have any substantial control, which I’ll define in my next article.  I think you’ll be disappointed to find that your 24% ownership strategy will not work.

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