26 Dec Injunction on Corporate Transparency Act Leaves BOI Reporting Clear to Partly Cloudy
On December 3, 2024, a federal judge from the U.S. District Court in the Eastern District of Texas issued a nationwide injunction which temporarily delays the enforcement of the Corporate Transparency Act (“CTA”) and its reporting requirements on Beneficial Owner Information (“BOI”). The Department of the Treasury then appealed and sought to stay the injunction. Although the stay was granted by a U.S. Court of Appeals, a different panel of the U.S. Court of Appeals for the Fifth District vacated the stay on December 26, 2024 so that companies are not required to report BOI. Oral arguments have been set for March 25, 2025, since the courts have gone back and forth on this, business owners are not likely to know every time a court makes a ruling.
How many small business owners (and others who have a controlling interest in a business) are even aware that January 1, 2025 was the due date (prior to the injunction) for most companies formed prior to January 1, 2025 for disclosing information about the company or beneficial owner if the company is a “reporting company”? Although there are 23 types of entities that are exempt from filing, any other business entity that is formed by filing with the secretary of state or similar office must report who has a beneficial ownership interest under the CTA. This also includes foreign entities who are registered in the U.S. and with a secretary of state or equivalent. A failure to report (if there was no injunction) could result in civil ($500 per day up to $10,000 per violation) and criminal (up to two years of imprisonment) penalties.
The CTA was enacted to “better enable critical national security, intelligence and law enforcement to counter money laundering, the financing of terrorism, and other illicit activity.”
Filing Information to Be Disclosed
The company information that must be disclosed includes the legal name of the company and any trade or “doing business as” names, and its business physical address, jurisdiction of information, state of registration for foreign reporting companies, and the tax identification number used for IRS filings.
The beneficial owner (one who exercises substantial control over the reporting company such as executive officers and some directors, in addition to those who own or control directly or indirectly, 25% of the ownership interests such as stocks, equity or shares of the reporting company) information includes the full legal name, date of birth, current residential address, driver’s license or passport number and images of the driver’s license or passport. However, if a beneficial owner or company applicant obtains a FinCEN identification, the reporting company can include that number in lieu of collecting and reporting the detailed personal information.
Also, company applicant information (in addition to the Beneficial Owner Information) is needed for companies filed on or after January 1, 2024. This includes any individual who directly files the certificate of formation or Certificate of Incorporation with the secretary of state. Similar to the beneficial owner information, the name, date of birth, physical residential address, driver’s license or passport number and image of driver’s license or passport or the FinCEN ID number of the company applicant is required.
Exemptions
Sole proprietors, general partnerships and businesses that aren’t registered with a state are not subject to the CTA. Also most companies that already have reporting obligations under different laws (i.e., financial institutions such as banking institutions, broker-dealers, registered investment companies, investment advisors, insurance companies, public companies, accounting firms, and large operating companies which are entities with a U.S. presence with more than 20 full-time employees and have filed federal tax returns showing more than $5,000,000 in gross receipts and sales) are exempt from filing.
For those reporting companies who form an entity with the secretary of state in 2025 or thereafter must file initial reports within 30 days of formation. Updates must also be filed 30 days after the date when there is any change.
Beneficial Ownership Information reports can be completed online at boifiling.fincen.gov. A Beneficial Owner or Company Applicant can apply for and receive a FinCEN ID at fincenid.fincen.gov/landing. There is no filing fee.
For many who indirectly own or control a reporting company, whether to report or not under the CTA, will be cloudy even if there was no injunction. Furthermore, many others will not know of their duty to report. As a result, the Corporation Transparency Act may not be transparent to many.
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