Filing Deadline for the Corporate Transparency Act

Filing Deadline for the Corporate Transparency Act – Halted as of 12/3/2024 and again 12/27/2024

The Corporate Transparency Act (CTA) was enacted by Congress on January 1, 2021, and final regulations were issued September 29, 2022. Most businesses have already complied with this new law or were planning to do so by its deadline of January 1, 2025. As of December 3, 2024, and again on December 27, 2024, enforcement of the CTA is halted nationwide and businesses do not need to comply – for now.

The U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction on December 3, 2024, that enjoined the federal government from enforcing the CTA. Enforcement was briefly revised December 23, 3034 and halted again on December 27, 2024. This means until further notice, businesses are not required to comply with the Act. However, we expect this situation to be temporary. This order will almost certainly be appealed, and the injunction may either be lifted or restricted to apply only to the group of businesses that filed the original lawsuit.

If the District Court’s injunction changes, all owners of corporations, LLCs, and other entities formed before 2024 and operating in the United States will likely once again be required to register with the U.S. Department of Treasury. Keep watching for further news. Until then, below is a brief explanation of how the CTA may apply to your business.

What is this law? The intended purpose of Congress in enacting the CTA is to protect the U.S. financial system from money laundering. The CTA establishes a central data registry of corporate entities doing business in the U.S. and their owners, with the goal of creating greater transparency. In doing so, Congress aimed to discourage the use of anonymous shell companies (“fronts” not actually doing any business) that disguise the identities of the people involved in them and move around illicit funds. The CTA is enforced by the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

Which business entities must report? Corporations, LLCs, limited partnerships – generally all entities created by filing registration documents with a state or other governmental authority, unless an exception applies. (More on the exceptions below.) The CTA calls each domestic or foreign entity that is required to report a “reporting company”.

Who does the reporting? Each reporting company must enter information into the FinCEN website that identifies each “beneficial owner” of the company, and for companies formed in 2024, the “company applicants” who created the company. A “beneficial owner” is a person who, directly or indirectly, either (1) exercises “substantial control” over a reporting company, or (2) owns or controls at least 25 percent of the “ownership interests” of a reporting company. If you hold interest in your company through a revocable trust, the trustee of the trust is probably the “beneficial owner” and should be reported as such. As you might expect, there are detailed definitions behind each of these terms. However, the following are not “beneficial owners”: minors; agents/nominees acting on behalf of beneficial owners; individuals who only have a future inheritance right in the company; employees; creditors; and third-party professional service providers to the company.

Are there exceptions? Yes, a long list. Twenty-three entities are exempt from reporting under the CTA. Among the exceptions are tax-exempt entities, banks, credit unions, insurance companies, financial advisers, securities broker-dealers, and certified public accountants. Any company that qualifies as a “large operating company” is exempt from reporting. The CTA defines a “large operating company” as an entity for which all the following are true: (1) more than 20 full-time employees, (2) more than $5 million in gross receipts or sales, and (3) a physical office in the United States.

How often is reporting required? The initial report must be filed by January 1, 2025 for each reporting company that began its existence (became registered to do business) before January 1, 2024. A reporting company that began its existence on or after January 1, 2024 must report to FinCEN within 90 days after receiving notice of its registration to do business. If your business was formed in 2024 and is more than 90 days past its confirmed state registration, now is the time to file. Once the initial filing with FinCEN is made, the reporting company is responsible for reporting any changes to the initial filing information within the 30 days following the change.

How do I file the report? Go to https://fincen.gov/boi and follow the prompts to enter data for each beneficial owner and the reporting company. There is no cost for filing. Have these items ready:

• For each beneficial owner: name; birthdate; address; I.D. number from a non-expired identification document such as a U.S. driver’s license, U.S. passport, or other state or tribal-issued I.D. You will also be required to upload to the website a photo of the I.D.
• For the reporting company: name(s); address(s); and for entities created on or after January 1, 2024, information about the people who formed the entity (“company applicants”).

Are there penalties for failing to report on time? Yes. The CTA provides that “willful failure to report” or providing “false or fraudulent beneficial ownership information” may result in civil or criminal penalties. Senior officers of an entity that fails to report beneficial ownership information may be held accountable.

Enforcement of the CTA is stopped – for now. If the federal courts or Congress act to change this, compliance with the CTA will likely be required once again. When this occurs, we anticipate recommending to our clients that they comply with the CTA. Anyone who needs help deciding whether their entity is a “reporting company” or who qualifies under the law as a “beneficial owner” should contract our firm as far in advance of the filing deadline as possible. Standard hourly fees apply.

More information is available in the Small Business Compliance Guide issued by FinCEN. The Guide may be downloaded in PDF at this link.