Update 12/18/24
As of 12/03/2024, Judge Amos Mazzant of the United States District Court for the Eastern District of Texas issued a Preliminary Injunction Order enjoining all reporting requirements under the CTA. This means that parties subject to the CTA’s reporting requirements are no longer required to comply with the reporting requirements so long as the Preliminary Injunction Order remains in effect. However, this Preliminary Injunction Order is temporary, meaning that Judge Mazzant can issue a future order removing the existing Preliminary Injunction at any time. As expected, the Department of Justice filed a notice of appeal on 12/05/2024.
If you wish to comply with the CTA’s reporting requirements voluntarily, you are still free to file a Beneficial Ownership Information Report (“BOIR”) with the Treasury Department. If you do not wish to comply at this time, you are not required to file a BOIR until there is a resolution of Judge Mazzant’s Preliminary Injunction Order.
If your business is subject to the requirements of the CTA and the injunction is lifted, the business is required to file a BOIR.
Update 12/04/24
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily blocking enforcement of the Corporate Transparency Act (CTA) and its associated Beneficial Ownership Information Reporting (BOIR) rule. This decision halts the requirement for reporting companies to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN), which was originally due by January 1, 2025, for entities formed before 2024.
The Corporate Transparency Act (CTA), signed into law in 2021, has introduced significant changes to anti-money laundering laws and established new reporting requirements for certain companies operating in the United States. Starting in 2024, many small businesses will need to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This initiative aims to create a national database to help national security and law enforcement agencies prevent the misuse of shell companies and other less-visible entities for criminal activities. This article provides a comprehensive overview of the Corporate Transparency Act, detailing who must file, what information must be provided, and how to comply with the new regulations.
Who Must File Under the Corporate Transparency Act (CTA)
Both domestic and foreign reporting companies are required to file reports. A company is considered a reporting company if a document was filed with the secretary of state (SOS) or similar office to create or register the entity. Corporations (including S corporations), LLCs (including single-member LLCs), and other entities formed through the SOS are subject to the reporting requirements. But, because sole proprietorships, trusts, and general partnerships do not require the filing of a formal document with the SOS, they generally are not considered a reporting company and will not have a filing requirement. Foreign companies are required to file reports if they are registered with the SOS or similar office under state law.
Some companies are exempt from reporting—generally because the exempted companies are already required to report ownership information to a governmental authority. Other exemptions to filing may be applicable. Of particular interest is the exemption for large operating companies. A large operating company is any entity with (a) more than 20 full-time U.S. employees, (b) an operating presence at a physical office within the U.S., and (c) more than $5,000,000 of U.S.-sourced gross receipts reported on its prior year federal income tax return. If you meet these qualifications, you are not subject to the new reporting requirements.
Beneficial Ownership Information (BOI) Requirements
Beneficial ownership information (BOI) must be reported for the reporting company’s beneficial owners and (for entities formed or registered after 2023) company applicants. BOI includes an individual’s full legal name, date of birth, street address and a unique ID number. The unique ID number can be from a non-expired U.S. passport, state driver’s license, or other government-issued ID card. If the individual does not have any of those documents, then a non-expired foreign passport can be used. An image of the document showing the unique ID number must also be included with the report.
Identifying Beneficial Owners
Two groups of individuals are considered beneficial owners of a reporting company: (1) any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company; or (2) any individual who exercises substantial controlover the reporting company.
Individuals with substantial control are those with substantial influence over important decisions about a reporting company’s business, finances, and structure. Senior officers (president, CFO, general counsel, CEO, COO, and any other officer who performs a similar function) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members. There is no requirement that these individuals have actual ownership in the company to be considered a beneficial owner for reporting purposes.
Company Applicants and Their Reporting Requirements
The company applicant is the person who actually files the document that creates or registers the reporting company (e.g., an attorney). Company applicants must provide the same information that is required of beneficial owners, but only if the reporting company is formed or registered after 2023. Because of the difficulty in tracking down information about company applicants for reporting companies that have been in existence for a number of years, reporting companies formed or registered before 2024 do not have to supply BOI for their company applicants.
Using FinCEN Identifiers for Reporting
Individuals and reporting companies can request a FinCEN Identifier (FinCEN ID) to use in place of supplying detailed information on the report. A FinCEN ID is a unique number assigned by FinCEN obtained by submitting the same information required of a beneficial owner or reporting company. A FinCEN ID may be useful to individuals that prefer to send their personal information directly to FinCEN rather through a reporting company, or to individuals that may be required to supply information as a beneficial owner or company applicant of several reporting companies.
Important Filing Dates for CTA
For existing reporting companies created or registered before 2024, the initial report is due by 01/01/2025. For reporting companies created or registered in 2024, the initial report is due 90-days after the entity’s creation or registration. For reporting companies created or registered after 2024, the initial report is due 30-days after the entity’s creation or registration.
If there is a change to previously reported information about the reporting company or its beneficial owners, an updated report must be filed within 30-days of the change. So, it is imperative that your company implement a system to identify reportable changes and file an updated report with FinCEN in a timely manner. The penalties for willfully failing to file both initial and updated reports are steep—$500 per day that the report is late, up to $10,000 and imprisonment for up to two years.
How to File BOI Reports
BOI reports must be filed electronically. FinCEN’s e-filing portal provides two methods to submit a report: (1) by filling out a web-based version of the form and submitting it online, or (2) by uploading a completed PDF version of the BOI report. DHJJ as a third-party service provider also can file the BOI report through our software.
The Corporate Transparency Act (CTA) represents a significant step towards enhancing transparency and preventing financial crimes. By understanding and complying with the new reporting requirements, business owners can ensure they are contributing to a safer and more transparent business environment. If you have any questions about these new reporting rules and how they affect your business, DHJJ is happy to discuss them with you. FinCEN also has a Small Entity Compliance Guide and frequently asked questions to help guide businesses through the reporting requirements.