Overview
A recent ruling by a federal appeals court has reactivated employer reporting requirements under the Corporate Transparency Act (CTA), with a new compliance deadline set for January 13. After a lower court temporarily blocked enforcement, the 5th Circuit Court of Appeals issued a decision on December 23 allowing the government to move forward with the Act while its constitutionality is reviewed.
Here’s what you need to know about the CTA, the implications of the ruling, and three crucial steps your business should take to comply with the updated requirements.
Understanding the CTA
The Corporate Transparency Act, passed in 2021, aims to combat money laundering by exposing shell companies used for illicit purposes. Certain businesses must disclose ownership details to the Financial Crimes Enforcement Network (FinCEN).
Originally set to take effect on January 1, 2025, the Act’s enforcement was delayed by legal challenges before a recent court decision revived it.
Legal Background: From Suspension to Reinstatement
- Why was the CTA halted?
On December 3, a Texas federal court ruled in Texas Top Cop Shop, Inc. v. Garland that the CTA exceeded Congressional authority under the Commerce Clause. This ruling aligned with a similar Alabama court decision but conflicted with rulings in Oregon and Virginia. The Texas court issued a nationwide injunction blocking enforcement.
- Why is the CTA back in play?
The 5th Circuit Court overturned the injunction, citing the public interest in addressing financial crimes and safeguarding national security. The court concluded that the Act could be enforced while its constitutionality is debated in the appeals process.
Penalties for Non-Compliance
Failure to comply with CTA reporting requirements can lead to daily fines of up to $591. Criminal penalties may include fines up to $10,000 and imprisonment for up to two years.
Steps for Employers to Take Before the Deadline
Evaluate Reporting Obligations
Determine whether your business falls under the CTA’s requirements. Approximately 32.6 million entities are subject to the Act, but exemptions exist for certain organizations, including nonprofits, highly regulated industries (e.g., banks, insurance companies), and large corporations. Review the full list of exemptions to confirm your status.
Fulfill Reporting Requirements
If your business is not exempt, you must submit Beneficial Ownership Information (BOI) Reports to FinCEN. These reports require details about the following:
- Beneficial Owners: Include names, dates of birth, residential addresses, and identification numbers with issuing jurisdictions.
- Your Business: Provide legal name, trade names, principal address, jurisdiction of formation, and Taxpayer Identification Number (TIN).
File the necessary information using the FinCEN online portal.
Track Deadlines
- Entities formed or registered before January 1, 2024, must file BOI Reports by January 13, 2025.
- Entities created between September 4 and December 23, 2024, have until January 13, 2025, to comply.
- Entities formed after December 3, 2024, receive an additional 21 days from their original deadline.
- Entities created on or after January 1, 2025, must file within 30 days of receiving notice of their creation or registration.
Conclusion
The reinstatement of the CTA highlights the need for businesses to act promptly to comply with its requirements. Review your obligations, gather the necessary information, and meet the deadlines to avoid penalties and ensure compliance.