Effective Jan. 1, 2024, the Corporate Transparency Act will introduce new compliance requirements for private reporting companies. These companies must now disclose personal details of individuals in key positions, such as officers, directors, and beneficial owners with a controlling interest of 25% or more.
Accountants and accounting firms play a crucial role in advising clients on compliance and due diligence services related to regulatory requirements, and acting as a liaison with legal counsel, which will include compliance with the reporting requirements of the CTA.
To ensure compliance with the CTA, it is important for accountants to familiarize themselves with the requirements and implications for their clients. Numerous articles and webinars are available providing information on the CTA and its interaction with trusts.
Determining direct ownership is straightforward, but complexities arise with indirect control, especially when shareholding interests are nested within one or more trusts. While trusts themselves are not reporting companies, trustees may need to disclose personal details of beneficiaries and their own information to reporting companies. The CTA covers both direct and indirect ownership or control, including interests held by trusts. If a trust holds at least a 25% ownership stake in a reporting company and the trustee has the power to manage trust assets, personal information on the grantor and beneficiaries may be required.
Reporting is also required if a trust holds a smaller portion of ownership but exerts significant influence, such as through majority voting rights or the power to make major decisions. Certain trustees and beneficiaries are exempt from reporting, including corporate trustees not under beneficiaries' control, minors, employees in ancillary roles, future expected beneficiaries, creditors of the trust, and nonprofit entities.
Compliance with the CTA is an ongoing process, requiring reporting of any changes in trustees, beneficiaries, contact information, or identification documents. Trustees must consider the overall level of control a beneficiary may have over a reporting company. Accounting professionals face the challenge of ensuring full compliance with the CTA in trust management. Monitoring and updating the status of trustees, grantors, and beneficiaries is crucial.
We are exploring AI-driven solutions to streamline compliance and reduce costs. While waiting for these technologies to emerge, clients should prepare for the financial implications of comprehensive reviews to determine if their trust terms fall under the beneficial owner reporting requirements of the CTA.
This is a critical moment for accountancy practices to showcase their expertise in trust management and CTA compliance. Staying updated with these developments and proactively managing reporting obligations will be essential for navigating the regulatory landscape.
