Corporate Transparency Act

The Corporate Transparency Act (CTA) took effect in 2024, under which the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued regulations aimed at reducing money laundering schemes and discouraging the use of shell companies to disguise and move illegal funds. The rule requires businesses to report their ownership or beneficial ownership information to FinCEN. Since small businesses are often used by nefarious actors as shell companies to hide money laundering and tax evasion activity, almost all small businesses are required to report.

Yes. On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nation-wide preliminary injunction staying the enforcement of the CTA and the reporting requirements until a decision is made on the merits of that case. The preliminary injunction applies to all businesses, regardless of state or country of formation, and means that no entity is required to file its CTA report until further court order. This is a preliminary injunction only and not a final decision. The Department of Justice has filed an appeal and the courts will address the legal issues in more detail and issue further orders, which could reinstate the reporting requirements, modify them, or abolish them entirely.

While entities may voluntarily file their CTA reports during the injunction, they are not required to do so. If the injunction is overturned on appeal or the reporting requirements reinstated, businesses may need to act quickly to meet the new deadlines. We recommend that businesses evaluate their entity structures and put mechanisms in place so that they are prepared to meet the new deadlines if the reporting requirements are reinstated. This includes identifying owners and decision-makers and analyzing whether exemptions apply.

While the injunction is in place, no penalties can be enforced because the CTA cannot be enforced. If it is reinstated, though, the current provisions provide that willful failure to report, or willfully providing or reporting false or fraudulent information, is unlawful and subject to civil penalties of up to $500 each day and criminal penalties of a fine up to $10,000 and/or imprisonment up to two years.

If reinstated, it is likely that the current version of the law will go back into effect, which requires many entities to file a Beneficial Ownership Information Report (BOIR), including small businesses. Certain exceptions exist for publicly traded companies, banks and credit unions, registered investment companies, public accounting firms, certain tax-exempt entities, and most large businesses (those with at least 20 full-time employees in the U.S., more than $5 million in annual gross revenues, and a physical location in the U.S.).

While the injunction is in place, no deadlines or timeframes apply to the reporting. If the CTA is reinstated, the current provisions provide that it is not an annual or recurring filing, but when information in a previously-filed BOIR changes, businesses must file an updated report within 30 days of the change. If you filed a CTA report before the injunction and have a change to previously-filed information, you are not required to file an update because the CTA cannot be enforced during the injunction.

The Beneficial Ownership Information Report (BOIR) includes information about the company, the beneficial owners, and, if formed after January 1, 2024, the applicants.

Company information includes the company’s name (including trade names and d/b/as), business address, state of formation, and taxpayer ID/EIN.

Information for beneficial owners and applicants includes each person’s full name, date of birth, residential address, ID number from a government issued ID, and an image of the ID document. No social security numbers are required for individuals.

Beneficial owners include persons who own or control 25% or more of the company as well as anyone who exercises substantial control over the company like officers and directors. Applicants are persons who direct, or assist with, the filing for a new entity. For most small businesses, the BOIR is pretty straightforward and is not a particularly heavy burden. But entities with complex ownership structures or operations may need to devote more time and resources to determining their beneficial owners and reporting obligations.

FinCEN offers individuals and companies the opportunity to obtain a FinCEN ID number, which number can be reported in place of the beneficial owner information on an entity’s filings. The FinCEN ID is obtained through FinCEN and requires the same information as filing as a beneficial owner, but it makes it easier in the future to report changes because only the FinCEN ID will need to be updated rather than updating each related entity separately. Individuals or companies who are beneficial owners of more than one entity should consider obtaining a FinCEN ID to make future updates easier. Additionally, a beneficial owner who is a “silent investor” or who is not doing the BOIR reporting directly may want to obtain a FinCEN ID in order to keep their individual information private from the reporting company.

No. The filings are not made public. FinCEN is required to store the BOIRs and reported information in a secure, non-public database using the same Federal government controls used to protect non-classified but sensitive information at the highest security level. FinCEN may only allow access to governmental agencies who submit requests for specific information relating to national security, intelligence, and law enforcement.

Yes. Our team at Myers & Myers can help with some or all of the following steps in the reporting process, including: (A) determining the threshold issue of whether your entity is exempt or must report; (B) if your entity must report, determining who are the beneficial owners; and (C) if your entity must report, gathering the information and filing the BOIR. Feel free to contact us if you have questions or would like our assistance in any of these matters.