A Business Owner’s Guide to Corporate Transparency Act (CTA) Exemptions

Are you a business owner wondering about the Corporate Transparency Act (CTA) and how it affects you? This comprehensive guide is here to help you understand the basics of CTA exemptions.

Initiating on January 1, 2024, most small U.S. businesses may need to file Beneficial Ownership Information (BOI) reports under the CTA. These reports are required for Reporting Companies, which include businesses where individuals own 25% or more of the company or have significant control over its operations.

The Corporate Transparency Act can be confusing, especially if you’re unfamiliar with legal jargon. However, before we dive into the exemptions, let’s talk about what could happen if you don’t comply with the CTA.

Consequences of Non-Compliance with the Corporate Transparency Act

Non-compliance with the CTA can lead to severe consequences for your small business. You could face hefty fines, possibly as high as $10,000, depending on the severity of the violation. But it doesn’t stop there; you could potentially face legal action, including the risk of criminal charges and jail time.

These consequences highlight the importance of not only understanding the Corporate Transparency Act but also making sure your business complies with its requirements. 

Thankfully, exemptions and tools, like TurboCTA, are available for reporting companies that can help make compliance more manageable.

Mastering Compliance with TurboCTA

If you’re overwhelmed by CTA compliance, TurboCTA is your go-to tool. It simplifies the process for business owners like you, determining your exemption eligibility and completing FinCEN filing in just 15 minutes. The first step is Setting up your TurboCTA account. 

Next, we’ll examine the 23 exemptions within the Reporting Rule and discuss their potential impact on your small business filings.

Exemptions under the Corporate Transparency Act

Exemption #1: Large Operating Companies

This exemption is available to organizations that meet the following criteria:

• Employ more than 20 full-time workers, as defined in 26 CFR 54.4980H-1(a) and 54.4980H-3.
• Employ more than 20 full-time workers within the United States, as defined in 31 CFR 1010.100(hhh).
• Maintain an active office within the United States, separate from unrelated entities.
• Filed a Federal income tax or information return in the United States for the previous year, with gross receipts or sales exceeding $5,000,000.

Exemption #2: Inactive Entities

Organizations qualify for this exemption if they meet these criteria:

• Exist on or before January 1, 2020.
• Are not actively conducting any business.
• Are not owned, either directly or indirectly, by a foreign individual or entity.
• Maintain consistent ownership over the past twelve months.
• Have sent or received less than $1,000 in funds directly or through any financial account in the past twelve months.
• Hold no assets in the United States or abroad and have no ownership interest in other entities.

Exemption #3: Bank Exemption

This exemption applies to organizations that meet any of these conditions:

• Fit the definition of a “bank” under the Federal Deposit Insurance Act.
• Fit the definition of a “bank” under the Investment Company Act of 1940.
• Fit the definition of a “bank” under the Investment Advisers Act of 1940.

Exemption #4: Credit Union Exemption

Organizations qualify for this exemption if they meet either of these conditions:

1. Fit the definition of a “Federal credit union” according to the Federal Credit Union Act.
2. Fit the definition of a “State credit union” according to the Federal Credit Union Act.

Exemption #5: Holding Company Exemption

This exemption is available to organizations that meet either of these conditions:

1. Fit the definition of a “bank holding company” under the Bank Holding Company Act of 1956.
2. Fit the description of a “savings and loan holding company” under the Home Owners’ Loan Act.

Exemption #6: Money Transmitter Business Exemption

Organizations qualify for this exemption if they meet either of these conditions:

1. Are registered with FinCEN as a money-transmitting business under 31 U.S.C. 5330.
2. Are registered with FinCEN as a money services business under 31 CFR 1022.380.

Exemption #7: Securities Broker or Dealer Exemption

This exemption applies if organizations meet both of these conditions:

• Fit the definitions of a “broker” or “dealer” under the Securities Exchange Act of 1934.
• Are registered under section 15 of the Securities Exchange Act of 1934.

Exemption #8: Securities Exchange or Clearing Agency Exemption

Organizations qualify for this exemption if they meet both of these conditions:

• Fit the definitions of an “exchange” or “clearing agency” under the Securities Exchange Act of 1934.
• Are registered under sections 6 or 17A of the Securities Exchange Act of 1934.

Exemption #9: Exemption for Other Registered Entities

This exemption is available if organizations meet both of these conditions:

• Are not a securities reporting issuer, a securities broker or dealer, or a securities exchange or clearing agency.
• Are officially registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934.

Exemption #10: Exemption for Investment Companies or Investment Advisers

Organizations qualify for this exemption if they meet both of these conditions:

• Are defined as an “investment company” or an “investment adviser” under applicable sections.
• Have formally documented with the Securities and Exchange Commission under relevant authorities.

Exemption #11: Exemption for Venture Capital Fund Advisers

This exemption applies to organizations that meet both of these conditions:

• Are investment advisers falling under the description in section 203(l) of the Investment Advisers Act of 1940.
• Have submitted required forms to the Securities and Exchange Commission.

Exemption #12: Exemption for Insurance Companies

Organizations qualify for this exemption if they fit the definition of an “insurance company” under the Investment Company Act of 1940.

Exemption #13: Exemption for State-Licensed Insurance Producers

This exemption applies if organizations meet both of these conditions:

• Are insurance producers authorized by a State and supervised by the State’s insurance commissioner or a similar official.
• Maintain a physical office presence within the United States.

Exemption #14: Exemption for Commodity Exchange Act Registered Entities

Organizations qualify for this exemption if they meet either of these two criteria:

1. Are considered a “registered entity” under the Commodity Exchange Act.
2. Are one of the specified types of entities registered with the Commodity Futures Trading Commission under the Commodity Exchange Act.

Exemption #15: Exemption for Public Accounting Firms

This exemption is available to public accounting firms registered in compliance with the Sarbanes-Oxley Act of 2002.

Exemption #16: Exemption for Public Utilities

Organizations qualify for this exemption if they meet both of these conditions:

• Fall under the definition of a “regulated public utility” as stated in 26 U.S.C. 7701(a)(33)(A).
• Offer specified services within the United States.

Exemption #17: Exemption for Financial Market Utilities

This exemption applies if the Financial Stability Oversight Council officially designates organizations under the Payment, Clearing, and Settlement Supervision Act of 2010.

Exemption #18: Exemption for Pooled Investment Vehicles

Organizations qualify for this exemption if they meet both of these conditions:

• Fit the criteria of a pooled investment vehicle.
• Are operated or advised by specified exempt entities.

Special Reporting Rules for Foreign Pooled Investment Vehicles

Entities formed in foreign countries that meet the criteria of Exemption #18 are subject to separate reporting requirements, known as “foreign pooled investment vehicles.” These requirements are explained in the Reporting Rule.

Exemption #19: Exemption for Tax-Exempt Entities

Organizations qualify for this exemption if they meet any of these four criteria:

1. Belong to a group defined in section 501(c) of the Internal Revenue Code of 1986, exempt from taxes under section 501(a) of the Code.
2. Belong to a group defined in section 501(c) of the Code, with recent tax-exempt status reinstated.
3. Are political organizations as defined in section 527(e)(1) of the Code, exempt from taxes under section 527(a) of the Code.
4. Are trusts described in specific sections of the Code.

Exemption #20: Exemption for Entities Assisting Tax-Exempt Entities

Organizations qualify for this exemption if they meet all four of these criteria:

1. Serve the sole purpose of providing financial assistance to or exercising control over a tax-exempt entity described in Exemption #19.
2. Are a United States entity, as defined in 26 U.S.C. 7701(a)(30).
3. Are owned or controlled exclusively by one or more United States entities that are either United States citizens or legally admitted for permanent residence.
4. Receive most of their funding or income from one or more United States entities that are either United States citizens or legally admitted for permanent residence.

Exemption #21: Securities Reporting Issuer

This exemption applies to organizations falling into one of two categories:

1. Issue securities and are officially registered under the Securities Exchange Act of 1934.
2. Must provide extra financial information due to the same Act.

Exemption #22: Exemption for Subsidiaries of Certain Exempt Entities

Organizations qualify for this exemption if their ownership interests are controlled or wholly owned by specified exempt entities, including securities reporting issuers, governmental authorities, banks, credit unions, and others listed in Exemptions #1 to #21.

Exemption #23: Government Authority Exemption

This exemption applies when organizations meet both of these conditions:

1. Establish themselves under the laws of the United States, an Indian tribe, a State, or a part of a State’s government, or form through an agreement between two or more States.
2. Possess the authority to make decisions and act on behalf of the United States, an Indian tribe, a State, or one of its subdivisions.

Special Reporting Rules

There are four special rules that may affect what you need to report:

1. Owned by an exempt entity: If your organization’s ownership is through other entities that don’t need to report, you can report the names of those entities instead of individual owners.
2. Minor child: If a minor child is a beneficial owner, their information doesn’t need to be reported. Instead, report the required information about the child’s parent or legal guardian.
3. Foreign pooled investment vehicle: If your company is a foreign pooled investment vehicle, you only need to report one person with substantial control over the company.
4. Company applicant reporting for existing companies: If your reporting company existed or registered before January 1, 2024, you don’t have to report company applicant information.

Expired Exemptions

If your business once met the criteria for an exemption under the CTA but no longer qualifies, there is an important requirement you need to understand.

You need to file a Beneficial Ownership Information (BOI) report within a tight deadline of just 30 calendar days from the time your company no longer qualifies for the exemption. This deadline is crucial, emphasizing your need to stay vigilant and regularly assess your eligibility for CTA exemptions. TurboCTA is a fantastic tool that can help manage this for your business.

Filing Deadlines for Reporting companies

Understanding the timelines for your reporting obligations is vital. While the Corporate Transparency Act officially kicks in on January 1, 2024, and companies can start submitting reports from that date onwards, the deadlines vary depending on when your business was established or registered.

If your company existed or registered before January 1, 2024, you have some breathing room. You must file your initial BOI reports by January 1, 2025. This extended timeframe gives older businesses time to prepare and meet their reporting requirements.

However, if your business came into existence or was registered on or after January 1, 2024, things move quickly. You have a tight window of just 30 days from the receipt of notice about your company’s creation or registration to initiate and complete the filing of the initial BOI reports. Late filings can lead to complications, as discussed earlier in this article, so it’s essential to comply proactively with these regulations. Click here to get started with your TurboCTA account.

Your Corporate Transparency Act Compliance Journey

We hope this simplified guide to CTA exemptions has given you valuable insights. Understanding these exemptions and using tools like TurboCTA can make a significant difference for businesses like yours!

TurboCTA is here to support you on this journey! Bookmark this article for future reference. It’ll be a valuable resource just a click away whenever needed to stay on top of compliance!