Corporate Transparency Act Update
UPDATE: On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, suspending enforcement of the Corporate Transparency Act's reporting requirements until the case can be fully considered. On December 5, 2024, the U.S. Department of Justice filed an appeal to lift the injunction.
Business owners will not need to meet the January 1, 2025 BOI filing deadline unless the Court of Appeals lifts the injunction. With so much up in the air, most experts are recommending that business owners fulfill their BOI requirements anyway, or at the very least be ready to do so if the requirement is reinstated. Be sure to reach out to your business law attorney with any questions you may have.
Under the Corporate Transparency Act (CTA), which took effect January 1, 2024, many business entities, including small limited liability companies (LLCs) and partnerships, are required to file reports with the Treasury Department’s Financial Crime Enforcement Network (FinCEN). In these filings, called Beneficial Owner Information (BOI) Reports, applicable businesses must disclose important information about their entity. Recent developments have called into question the constitutionality of these requirements.
What Is the Corporate Transparency Act, and What are the Requirements?
The CTA is a federal law that requires business entities, referred to as reporting companies, to disclose certain information about the company and its owners to FinCEN. Under the CTA, a reporting company is defined as a corporation, LLC, or similar entity that is (i) created by filing a document with the secretary of state or a similar office under the laws of a state or Indian tribe or (ii) formed under the laws of a foreign country and registered to do business in the United States (31 U.S.C. § 5336(a)(11)). The following information about reporting companies in the United States must be included in the report (31 C.F.R. § 1010.380(b)(1)(i)):
the company’s full legal name and any trade name or doing business as (d/b/a) name
street address of the principal place of business
jurisdiction where the business was formed
tax identification number
Additionally, the reporting company must provide information to FinCEN about its beneficial owners, defined as persons who hold significant equity (25 percent or more ownership interest) in the reporting company or who exercise substantial control over the reporting company. “Substantial Control” includes managers, officers, directors, people with “substantial influence over important matters,” and may include Trustees, Trust Protectors, Beneficiaries and other people named in a Trust, if the company is owned by a Trust (31 U.S.C. § 5336(a)(3)(A)). The expansive definition of a beneficial owner has broad implications for trusts that own interests in reporting companies.
The following information must be provided to FinCEN:
full legal name
date of birth
current residential or business address
unique identification number from an acceptable identification document or FinCEN identifier
For reporting companies created on or after January 1, 2024, the same information must be provided about the company applicant, who files the creation documents for the reporting entity (Id).
Should You Get a FinCen Identifier?
If you are a beneficial owner of a reporting company, then YES! Obtaining a FinCen Identifier takes about 5 minutes online and can help beneficial owners protect their private information and update it themselves without having to notify the company. You can then provide your company with a FinCen identifier.
For example, if you are a beneficial owner of several companies and you change your residential address, you will need to update your address under each of those companies through FinCEN. If you have a FinCen Identifier number, you can simply update your address under your Identifier and the update will carry through to all of the companies for which your Identifier is registered.
Pro tip: your filing will go much more quickly if you have a pdf of your government-issued ID handy and ready to upload.
Penalties for Failure to Comply
The penalties for failing to timely file and properly comply with the law are steep, including fines of $500 per day, up to $10,000 per violation, and up to two years of jail time. Fines will also accrue for failing to timely amend a filing—for example, when a beneficial owner changes their address. Such fines can grow much higher than the initial $10,000 prior to an initial notification of violation from FinCEN.
Deadlines to Comply
For businesses that incorporated prior to 2024, the deadline to file BOI Reports is December 31, 2024.
For businesses that incorporated in 2024, the deadline is 90 days after incorporation.
For businesses that incorporate in 2025 or after, the deadline is 30 days after incorporation.
Challenges to the Corporate Transparency Act
Several lawsuits have been filed by small business associations and small business owners alleging that the CTA is unconstitutional and that Congress has exceeded its authority in requiring companies to disclose personal stakeholder information to FinCEN. In one of the suits, National Small Business United v. Yellen, the United States District Court for the Northern District of Alabama held that the CTA is unconstitutional because Congress lacks the authority to require companies to disclose personal stakeholder information to FinCEN. 6 The Department of Justice has appealed this ruling to the Eleventh Circuit Court of Appeals.
Where Do We Go From Here?
With one case decided, two awaiting further proceedings, and other lawsuits being filed, there will be little change for most business owners. The decision in Alabama only applies to the named plaintiffs; anyone not part of that case is still required to comply with CTA requirements.
The bottom line is that business owners need to comply with the CTA by the deadlines above. When in doubt about whether a person qualifies as a “beneficial owner” of the company, it is best to err on the side of reporting them on the BOI.
How to Comply
Filing a BOI is relatively straightforward, especially for small businesses with a single owner or just a few beneficial owners. The FinCen website has free guides and information about how to e-file the BOI Report. Filing is free.
Start by asking each of the beneficial owners to obtain a FinCEN ID and send it to the person who will do the reporting. Keep the IDs on file with the company for any future reporting needs.
If you have a business attorney that you work with, you can reach out to them for assistance or guidance in filing your BOI. There are many law firms filing BOIs for relatively low fees as well. Treetown Law is not filing BOIs at this time.
Please be aware that there are scammers out there posing as FinCen and asking business owners to send money or provide information.
Whatever you do, DON’T DELAY. The FinCEN website is expected to be overwhelmed in the last days of the year, so get your filing in before traffic backs up, so you can focus on celebrating on New Year’s Eve.
When To Reach Out to Treetown Law
If you did an estate plan with us and assigned your business interests to your Trust, please contact us right away and we will help you make sure that you are in compliance with the law.
We are also here to help if you have questions or otherwise need assistance.
Further Reading
There is a lot written out there about the CTA and BOI filing requirement. This article published on the American Bar Association website is a great place to start.
Treetown Law is here for you every step of the way. Please contact us today to get started!
