March 4, 2024: Update Regarding the Corporate Transparency Act
On March 1, 2024, a U.S. district court in Alabama ruled that the Corporate Transparency Act (CTA), which mandates filing a report disclosing personal stakeholder information to the Treasury Department, exceeds Congress’s legal authority and is unconstitutional. This ruling means that, at least for the time being, businesses are not required to comply with the CTA’s reporting requirements as previously mandated (see below).
However, it’s essential to understand that this decision could be subject to further legal challenges, including potential appeals. Thus, while the immediate effect of the ruling relieves businesses from the obligations under the CTA, the evolving legal landscape suggests that business owners should stay informed about any developments related to the CTA and its enforcement.
Business owners should also consider the implications of the ruling on their operations and compliance strategies. While they are not required to file under the CTA currently, it’s prudent to prepare for any future changes that could either reinstate these requirements or introduce new ones. We will continue to monitor pending actions and will provide timely updates regarding reporting obligations as required by the CTA.
Original Article Published October 2023:
New Corporate Transparency Act Reporting Requirement: What do I Need to File and When?
Starting January 1, 2024, millions of small businesses must file a Beneficial Ownership Information (BOI) Report with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This requirement stems from the Corporate Transparency Act (CTA), aimed at combating money laundering, terrorism financing, tax fraud, and other illicit activities facilitated by concealing ownership of corporations, LLCs (Limited Liability Company), or similar entities in the United States. Congress asserts that collecting beneficial ownership information is essential to safeguard national interests and enhance efforts to counter these illegal acts.
Who Is Required To File A BOI Report?
“Domestic reporting companies” and “foreign reporting companies” are required to file a BOI report. A domestic reporting company includes those entities (such as corporations, limited liability companies, or other similarly organized entities) which were legally created by the filing of paperwork with a Secretary of State or similar office of authority. A foreign reporting company is any corporation or other entity formed under the laws of a foreign country and registered to do business in any U.S. state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office of authority. Unless any such entity is exempt, it is required to file the BOI report.
Who Is Exempt From BOI Reporting?
Most of the available exemptions from the pool of 23 exemption categories include entities already subject to significant federal or state regulation. Exempt entities include publicly traded companies, SEC-reporting entities, banks, credit unions, money services businesses, securities brokers and dealers, tax-exempt entities, insurance companies, state-licensed insurance producers, pooled investment vehicles, public utilities, and accounting firms. Furthermore, a “large operating company” exemption applies to entities meeting specific criteria, such as having more than 20 full-time employees in the United States, a physical office presence in the country, and over $5 million in domestic annual gross receipts or sales based on a previous year U.S. federal income tax or information return.
What Information Must Be Reported?
Domestic reporting companies established before January 1, 2024, must report details about the company and its beneficial owners. Those companies established on or after that date must provide information about the company, its beneficial owners, and company applicants.
The report must include the reporting company’s full legal name, any other names, such as trade or “doing business as” names, the principal place of business street address and state, the jurisdiction where the company was formed, and its taxpayer identification number.
For all beneficial owners and applicants, the reporting company must report their full legal name, date(s) of birth, residential street address, unique identifying number, issuing jurisdiction documentation (U.S. passport, state or local ID document, driver’s license, or foreign passport), and an image of the document containing the unique identifying number.
When Are The Filing Deadlines?
For domestic reporting companies established prior to January 1, 2024, the initial BOI report must be submitted by January 1, 2025. Companies established on or after January 1, 2024, must file their initial BOI report within 30 calendar days from the date that their entity was legally formed (or, if previously exempt from BOI reporting, within 30 calendar days of the date when the entity no longer meets the criteria for an exemption).
If any information included in the BOI report changes, including changes in beneficial ownership and exemption eligibility, domestic reporting companies must update the information within 30 calendar days from when the change took place. Companies are not required to update company applicant information.
How Do We File?
All BOI reporting is accomplished through the FinCEN website. First-time BOI reports, amendments, and corrections all will be accomplished through electronic filing with no accompanying fees.
Individual beneficial owners and company applicants may request a unique FinCEN Identifier by applying to FinCEN.
How Can We Prepare For BOI Reporting?
- Small business owners and managers must first determine whether their business fits the definition of a domestic reporting company, therefore being subject to the CTA’s BOI reporting requirement.
- If so, they should next collect the required information for the initial BOI report and confirm the accuracy of such information.
- Companies should familiarize themselves with the BOI reporting information and process, found in more detail on FinCEN’s website.
- Companies should establish a system to track and update reported information, as necessary.
Ready to ensure your business stays on the right side of the law? Reach out to our skilled Gertsburg Licata Labor & Employment experts today and embark on a path to legal compliance and success.
Eugene Friedman is a Partner at Gertsburg Licata, focusing his practice on counseling businesses of all shapes and sizes in various aspects of business law, commercial contracts, corporate and real estate transactions. Mr. Friedman worked in global market development prior to practicing law and helped launch and take new technologies to market.
George V. Pilat is a Partner at Gertsburg Licata with over 30 years of business and legal advisory experience. George has been a trusted counselor to small and medium-sized businesses, business owners, and entrepreneurs, offering comprehensive legal guidance in business formation, transactions and litigation.
Disclaimer: The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. It does not establish an attorney-client relationship, and any reliance on the information contained herein is done at your own risk. For specific legal guidance tailored to your business and jurisdiction, it is recommended to consult with a qualified attorney who can provide professional advice based on your unique circumstances.
