The Corporate Transparency Act is a federal law that has wide-reaching implications for businesses of every size in New York. This law is intended to fight fraud and tax evasion, but it imposes new requirements on small businesses that never had to face this level of oversight until now.

Corporate Transparency Act Reporting

The essence of the Corporate Transparency Act is that it provides a new requirement for businesses to collect information about their owners, ensure it is up to date, and then report it to FinCEN, the Financial Crimes Enforcement Network. This process helps the federal regulators of businesses ensure that new entities are not shell companies designed to evade taxes or oversight. Nonprofits, publicly traded companies, large companies with revenues over $5 million and over 20 employees, and financial services companies are exempt, but virtually every other company in the U.S. is required to collect and submit the information.

In the past, small businesses would not have been required to identify their owners to a federal regulator, and generally would only need to list their officers and directors as part of their initial paperwork with the state. These new requirements create legal exposure for small businesses who did not previously track this information. Compliance with this law will be increasingly important as federal regulations against tax evasion and money laundering increase and the penalties for noncompliance grow. The regulation applies to both new and existing companies– all must submit the correct identification of owners.

Small businesses are facing more and more federal scrutiny, and the Corporate Transparency Act is just one of several recent laws that require ownership transparency.