Major Law Development for Small Businesses

First Citizens Wealth INTEL: Insights and News—Taxation, Election & Legislation

Each month, we'll cover time-sensitive updates on tax, election and legislation developments that could affect you.

Enacted in 2021, the Corporate Transparency Act, or CTA, is part of a government crackdown on anonymous shell companies. The CTA became effective January 1, 2024, with filing deadlines based on the date of formation of the reporting company. Get more information from the frequently asked questions and Small Entity Compliance Guide (PDF) by the US Department of the Treasury's Financial Crimes Enforcement Network, or FinCEN.

Alert as of December 5, 2024

On December 3, a federal judge in Texas found the CTA unconstitutional and ordered a nationwide preliminary injunction. Prior to this court order, most reporting companies and their beneficial owners were facing a January 1, 2025, deadline to file beneficial ownership information with FinCEN. Companies that didn't file on time would face serious civil and criminal penalties. Because of this December 3 court decision, no filings are currently required with FinCEN under the CTA.

However, as of 12 pm ET or 9 am PT on December 5, FinCEN filed a notice of appeal with the 5th Circuit Court of Appeals. We're waiting to learn whether FinCEN will also ask the 5th Circuit Court of Appeals, pending its decision on the merits, to reinstate its effective date of January 1, 2025.

With such a fluid situation and only days before compliance may be required, you should seek professional guidance, gather the required information and prepare to comply by January 1, 2025.

Who is impacted

The companies impacted by the CTA are mainly the more than 32 million US-based small businesses with 20 or fewer employees and less than $5 million in revenue. These are defined as reporting companies—usually a corporation, limited liability company or other similar entity formed by filing a formation document in the US.

The people impacted are the beneficial owners of those reporting companies. A beneficial owner is an individual who either directly or indirectly exercises substantial control over the reporting company or owns or controls at least 25% of the reporting company’s ownership interests.

There are exceptions. For example, 23 categories of business entities are exempt from the definition of reporting company. And there are five profiles not defined as beneficial owners, including most employees and minors if their parent or guardian details are recorded. It's important to check your company and ownership status with your CPA, lawyer or advisor.

What action is required—and when

The CTA requires every reporting company to file a Beneficial Ownership Information Report, or BOIR, with the FinCEN. The BOIR must provide accurate information on both the company and all its beneficial owners. Company information must include the company's legal name and address of the main business site. Beneficial owners' personal information includes full legal name, date of birth and residential address.

If your company existed before January 1, 2024, the BOIR filing deadline is January 1, 2025. If the company was formed in 2024, you have 90 days from the notice of formation or public announcement—whichever comes first—to file. If you intend to form a company after January 1, 2025, you have 30 days from notice or public announcement to file.

Filing is mandatory, and failure to do so could result in penalties of $591 per day, adjusted for inflation, a $10,000 fine and up to 2 years in prison. Knowingly failing to comply could result in even more severe fines of $250,000 and a 5-year prison sentence.

Who you should talk to now

Check with your CPA, lawyer or other professional advisor on the status of any reporting businesses in which you believe you have beneficial ownership. Make a note of the filing deadlines for any BOIR you may be required to submit. In addition, be sure to check the date you dissolved any company you've recently been involved with. But don't delay. The potential deadline is fast approaching.