UPDATE (12/4/24): Corporate Transparency Act Requirements Halted by Federal Court
A federal court in Texas halted the implementation of the Corporate Transparency Act’s (CTA) beneficial ownership reporting requirements. Holding that the CTA is likely unconstitutional, the court issued a preliminary injunction barring the government from enforcing the CTA and its reporting requirements against anyone. Therefore, at this time, there is no need to file the CTA.
Time is running out for small business owners to comply with the Corporate Transparency Act (CTA) and ignoring the upcoming deadline could have dire consequences.
“For most eligible businesses, the filing deadline is January 1, 2025. Those who fail to file by this deadline — or fail to update this information if needed — could face up to two years imprisonment and fines up to $10,000, in addition to civil penalties of up to $591 per day,” reports the U.S. Chamber of Commerce.
Given the CTA moniker, mom-and-pop and main street businesses that have overlooked the act’s filing requirements to date can be forgiven as the CTA may sound like it’s aimed at large corporations but in fact they are exempt from it.
“The focus of the CTA is not on larger companies but rather on smaller and medium-sized legal entities, including shell companies, that generally either are not subject to supervision by other regulatory agencies (e.g. entities regulated by the Securities and Exchange Commission and Commodity Futures Trading Commission, or organizations that are tax-exempt under the Internal Revenue Code), or employ fewer than twenty-one full-time employees and generate less than $5 million in annual U.S. revenue,” explains the American Bar Association.
Let’s take a closer look at the CTA, why it was enacted, its filing requirements, and why the U.S. Chamber of Commerce recommends businesses seek the advice of an accountant or attorney to complete the paperwork.
What is the Corporate Transparency Act (CTA)?
The Corporate Transparency Act (CTA) was introduced as part of the Anti-Money Laundering Act of 2020 and was enacted as part of the National Defense Act for Fiscal Year 2021.
“Enacted by Congress in 2021, the CTA requires many companies formed or operating in the United States to report information about their beneficial owners to Treasury’s Financial Crimes Enforcement Network (FinCEN), which will store this sensitive information in a secure, confidential database,” says the U.S. Department of Treasury.
Starting on Jan. 1, 2024 the FinCEN began accepting beneficial ownership information reports:
- Existing companies: Reporting companies created or registered to do business in the United States before January 1, 2024 must file by January 1, 2025.
- Newly created or registered companies: Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective. Those created or registered after Dec. 21, 2024 will have 30 calendar days to file.
Beneficial ownership information reporting is not an annual requirement. A report only needs to be submitted once, unless the filer needs to update or correct information. Generally, reporting companies must provide four pieces of information about each beneficial owner:
- Name
- Date of birth
- Address
- Identifying number and issuer from either a non-expired U.S. driver’s license, a non-expired U.S. passport, or a non-expired identification document issued by a State (including a U.S. territory or possession), local government, or Indian tribe. If none of those documents exist, a non-expired foreign passport can be used. An image of the document must also be submitted.
The company must also submit certain information about itself, such as its name(s) and address.
In addition, reporting companies created on or after January 1, 2024, are required to submit information about the individuals who formed the company (“company applicants”).
Why Was the CTA Enacted?
The CTA is aimed at malicious actors concealing their ownership of corporations, limited liability companies, and other similar entities in the United States to facilitate illicit activity such as:
- Money laundering
- Financing of terrorism
- Proliferation financing (providing funds to support development, acquisition, or use of weapons of mass destruction)
- Serious tax fraud
- Human and drug trafficking
- Counterfeiting
- Piracy
- Securities fraud
- Financial fraud
- Acts of foreign corruption
The U.S. Department of Treasury says the CTA is meant to prevent corrupt and other actors from laundering illicit funds through anonymous companies in the United States, and it will equip law enforcement and other partners with the information they need to disrupt financial anonymity that enables crimes such as corruption, drug trafficking, and terrorism.
“Unmasking shell corporations is the single most significant thing we can do to make our financial system inhospitable to corrupt actors,” says Secretary of Treasury Janet Yellen.
Who Must File Beneficial Ownership Information (BOI)
Beneficial ownership information (BOI) must be submitted by all domestic and foreign entities that have filed formation or registration documents with a U.S. State (Corporations and LLCs are included) unless they meet one of the exemptions:
- Exempt: Large operating companies that meet ALL of the following requirements:
- Employ more than 20 people in the U.S.
- Had gross revenue (or sales) over $5 million on the prior year’s tax return
- Has a physical office in the U.S.
- Exempt: Publicly traded companies that have registered under Section 102 of Sarbanes-Oxley Act (SOX)
Who is a beneficial owner? Any individual who, directly or indirectly either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests
“Reporting companies must file an initial BOI report and updated or corrected BOI reports as needed,” says Houston area attorney Brittany A. Sloan. “It is not an annual filing requirement. However, if a beneficial owner has a change of address or receives a new driver’s license or passport, the company must file an updated BOI report including a copy of the new identifying document.”
Why You Might Need an Attorney or Accountant Help You File
While it’s possible to file your own BOI reports, the U.S. Chamber of Commerce says that business owners might be better served by seeking the assistance of an attorney or accountant to complete the paperwork.
“It may not be difficult to complete the forms, but with everything a small business owner must do to operate a successful business, I fear this is something that could be missed or not done [promptly],” Roger Harris, President of Padgett Business Services explained to the U.S. Chamber of Commerce. “There are some issues in the law that could require an interpretation of certain facts to determine who is a beneficial owner that must be included in the filings. If you find yourself in this situation, consult with an attorney to help you decide how your set of facts fits within this law.”
Harris recommends consulting a knowledgeable advisor, such as an attorney or an accountant, when filing the initial and/or updated reports to ensure they’re completed on time and to FinCEN’s standards.
B. Sloan Law Can File Your BOI Reports
Sloan Law is available to file BOI reports on behalf of your business. The fee is $200 per entity and to file, you will need to supply every beneficial owner(s):
- Name
- Birthdate
- Address
- Social Security Number
- Copy of the beneficial owner(s) driver’s license or passport
Contact the B. Sloan Law office today if you have any questions regarding the BOI reporting requirements.