On December 3, a United States federal district court in Texas ruled that the Corporate Transparency Act (CTA) is an unconstitutional infringement on states’ rights to regulate businesses. As a result, companies are not currently required to file beneficial ownership reports with the Financial Crimes Enforcement Network on January 1, 2025.
Enacted as part of the National Defense Act for Fiscal Year 2021, the CTA’s disclosure requirements were designed to help U.S. law enforcement combat money laundering, the financing of terrorism, and other illicit activity. Under the CTA, BOI reports would have been filed with the Financial Crimes Enforcement Network (FinCEN), an agency of the Department of Treasury.
Reporting Requirements
Below are the general guidelines for the CTA’s reporting requirement. This information is not meant to be legal or tax advice, and should not be applied to your specific facts and circumstances without consulting competent legal counsel or another professional adviser.
Domestic companies required to file a BOI report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Native American tribe. Domestic entities that are not created by the filing of a document with a secretary of state or similar office may not be required to report under the CTA.
International companies required to report under the CTA include corporations, LLCs, or any similar entity formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.
Are There Any Filing Exemptions?
There are 23 categories of exemptions including publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities, and certain inactive entities. These are not blanket exemptions, and many government-regulated companies already disclose their BOI to a government authority.
Most notably, certain “large operating entities” may be exempt from filing. To qualify for this exemption, the company must:
- Employ more than 20 full-time employees (average of at least 30 hours per week) in the U.S.
- Have reported gross revenue (net of returns and allowances) from U.S. sources of over $5 million on the prior year’s tax return, and
- Have an operating presence at a physical location within the U.S.
The BOI Small Entity Compliance Guide provides further explanations and checklists for these nuanced exemptions.
Who Is a Beneficial Owner?
Any individual who, directly or indirectly, either:
- Exercises “substantial control” over a reporting company, or
- Owns or controls at least 25 percent of the ownership interests of a reporting company.
The CTA regulations define the terms “substantial control” and “ownership interest” further.
FinCEN expects every reporting company to have at least one individual to have “substantial control”.
Deadlines to File
As a result of the Texas court ruling, companies are not currently required to file beneficial ownership reports with the Financial Crimes Enforcement Network. However, reporting entities should remain prepared to file the beneficial ownership reports in the event of a new ruling.
What Information Is Reported?
Companies must report the following information: the full name of the reporting company, any trade name or doing-business-as name, business address, state or tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).
Additionally, information is required on the beneficial owners of the entity and, for newly created entities, the company applicants of the entity. The following individual information is required to be reported: full legal name, date of birth, current address, and legal identification (such as a state issued driver’s license or U.S. passport).
Non-compliance Risks
Penalties for willfully not complying with the BOI reporting requirement are steep and can result in criminal and civil penalties of $500 per day and up to $10,000, with up to two years of jail time.
As you can see, this new law is complex and subject to interpretation. Should the CTA go back into effect, we suggest you contact your business entity’s legal counsel to determine how the reporting law applies to your situation.
