UPDATE: Court Rules the Corporate Transparency Act Can be Enforced; Business Owners Must Comply by New Deadline of January 13, 2025.

On Monday, December 23, 2024, an appeals court determined the Corporate Transparency Act can be enforced. The law requires small business owners to register with the Financial Crimes Enforcement Network, or FinCEN, by January 13, 2025 or potentially pay fines of up to $10,000.  The original deadline of January 1, 2025 has been extended due to the recent ruling.

What is the Corporate Transparency Act and Why Was it Passed?

The Corporate Transparency Act (CTA), a federal law passed in 2021 as part of the National Defense Authorization Act, requires all businesses formed and/or operating in the United States, which includes foreign companies operating in the US, to report their beneficial ownership information to the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).  Congress considers the legislation an important tool to prevent and expose money laundering, the financing of terrorist groups, corruption, tax evasion, tax fraud, and other illicit activities which threaten the United States’ national security and erode the stability of our economy.

It is estimated the CTA’s reporting requirements will affect nearly 30 million companies.  The collected information will not be publicly available, however, FinCEN can disclose the information to enforcement agencies and, with the consent of the reporting company, to financial institutions and their regulators.

According to FinCEN, beneficial ownership information (BOI) must be reported to www.fincen.gov/boi by January 13, 2025.

What is a beneficial owner?

A beneficial owner is any individual or individuals who own or control an entity such as a corporation or Limited Liability Company (LLC).  FinCEN explains this includes anyone who exercises substantial control over a reporting company or owns or controls at least 25 percent of the ownership interests of a reporting company.

Are any businesses exempt from the CTA?

The CTA excludes several types of highly regulated companies from reporting such as banks, securities issuers, domestic governmental authorities, insurance companies, public utilities and tax-exempt entities.

Also, large companies are exempt.  For purposes of the CTA, a “large company” is defined as employing more than 20 full-time employees, filed US income tax returns in the previous year indicating more than $5 million in gross receipts or sales, and operates from a US-based physical location which is not a personal residence.

Businesses that believe they fall under the “large company” exemption should consult with tax or legal advisors as the rules are complicated, refer to IRS definitions of employees, and have subtleties which may require reporting to FinCEN. 

US public companies, entities that have publicly issued securities and are required to submit periodic reports to the US Securities and Exchange Commission, are also exempt insofar that they meet the requirements of the Securities Exchange Act of 1934 and related reporting requirements.

Are there penalties for noncompliance?

There can be both civil and criminal penalties for noncompliance, including civil fines up to $591 per day, capped at $10,000, and imprisonment up to two years for criminal charges.

Is there a fee to report?

There is no fee for reporting BOI to FinCEN.

Have there been legal challenges to the Corporate Transparency Act?

Yes, there have been challenges to the legislation, notably from the National Small Business Administration (NSBA), arguing the law is overly burdensome for America’s small businesses.  While the judge in the case struck the ruling down for only certain members of the NSBA, the Department of Justice is appealing the ruling, and the law stands.

Congress can repeal the CTA.

There was an attempt to legislatively repeal the CTA, however, this was not included in the Continuing Resolution which was recently passed.

Where do I go for more information and to report the BOI for my company?

Go to www.fincen.gov/boi for further information and to comply with the CTA.

Please be aware of fraudulent sites and claims to assist with compliance by providing sensitive information to third parties. 

For questions specific to your business, consult a tax or legal advisor.