BOI reporting requirements reinstated

ARTICLE | December 27, 2024

Authored by FMF&E

The Corporate Transparency Act (CTA) has recently resurfaced after a U.S. District Judge issued a nationwide injunction in early December. After a period of legal challenges and uncertainty, the CTA's reporting requirements have been reinstated. Understanding these changes is crucial for many businesses to stay compliant and avoid penalties.  

What is the CTA?

The Corporate Transparency Act (CTA), enacted in January 2021, requires certain entities (“reporting companies”) to disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). Its goal is to create a centralized BOI database to help authorities detect and prevent financial crimes, closing loopholes that enable anonymity through shell companies.

What happened?

The CTA faced immediate legal challenges that questioned its constitutionality. On December 3, 2024, a U.S. District Judge in Texas issued a nationwide injunction blocking the enforcement of the reporting requirements of the CTA. 

On December 23, 2024, the Fifth Circuit Court of Appeals lifted the nationwide injunction, effectively reinstating the CTA's reporting requirements. In their decision, the appellate judges reasoned that the plaintiffs were unlikely to succeed on the merits of their constitutional claims. They emphasized that the CTA falls within Congress's broad authority under the Commerce Clause to regulate activities that substantially affect interstate commerce, including efforts to combat money laundering and other financial crimes.

The court's decision means that the CTA is back in effect now, and businesses must comply with their reporting obligations. 

FinCEN's response and updated deadlines

In light of the court's ruling, FinCEN promptly issued updated guidance to assist businesses in meeting their reporting obligations. Recognizing that the injunction period may have disrupted compliance efforts, FinCEN extended certain BOI reporting deadlines to provide entities additional time to prepare.

Under this revised guidance:

• Companies created or registered before January 1, 2024:
  Must file their initial BOI reports by January 13, 2025 (instead of the original January 1, 2025, deadline).

• Companies created or registered on or after September 4, 2024, with a filing deadline between December 3, 2024, and December 23, 2024:
  Have until January 13, 2025, to submit their initial BOI reports to FinCEN.

• Companies created or registered between December 3, 2024, and December 23, 2024:
  Receive an additional 21 days from their original filing deadline to submit their initial BOI reports.

• Companies that qualify for disaster relief:
  May have reporting deadlines extending beyond January 13, 2025. These entities should comply by the later applicable deadline.

• Companies created or registered on or after January 1, 2025:
  Must file their initial BOI reports within 30 days of receiving actual or public notice of their formation or registration.

It is crucial for businesses to verify which specific filing deadline applies to them and to keep track of any future announcements that might further affect these timelines.

BOI to be reported

For reporting companies, the CTA requires the disclosure of specific information about each beneficial owner. A "beneficial owner" is defined as an individual who, directly or indirectly, either:

• Exercises substantial control over the entity, or

• Owns or controls at least 25% of the ownership interests of the entity.

Reporting companies must submit each beneficial owner's full legal name, date of birth, residential or business address, and unique identifying number (such as a driver’s license or passport). 

This information aims to create transparency regarding who truly owns and controls various entities operating within the United States.

Consequences of non-compliance

Failure to comply with the CTA's reporting requirements can result in substantial civil and criminal penalties. Civil penalties may include fines of up to $500 per day until the violation is remedied, while criminal penalties can involve fines up to $10,000 and imprisonment for up to two years. Non-compliance not only risks financial loss but can also damage an entity's reputation and stakeholder trust.

Submitting reports on time

FinCEN’s revised deadlines for BOI reporting emphasize the significance of staying on schedule and adhering to the CTA’s mandates. Entities subject to these requirements should promptly reassess their reporting obligations and ensure they submit required reports on time to avoid non-compliance penalties. 

If you have questions, please contact our office.