Entities in existence prior to January 1, 2024, that are non-exempted "reporting companies" under the Corporate Transparency Act ("CTA"), must make initial filings with the Financial Crimes Enforcement Network bureau of the United States Department of the Treasury ("FinCEN") by no later than December 31, 2024. Time is running out to comply with these initial filing requirements. We have previously written about the CTA and its requirements on newly formed companies (What You Need to Know About the Corporate Transparency Act), but now we are focused on the CTA's requirements for pre-existing companies, which account for the majority of entities subject to the CTA and face a December 31, 2024 reporting deadline.
Penalties for Non-Compliance
Willfully failing to report, willfully providing or attempting to provide false or incomplete information, or willfully failing to update information to FinCEN can result in civil penalties of up to $500 per day and criminal penalties of up to two (2) years of imprisonment and fines of up to $10,000.
Pre-Existing Companies Now Required to Report
On January 1, 2024, the CTA went into effect. The intent of the CTA is to bring the United States into compliance with international anti-money laundering standards. The CTA requires certain entities—including limited liability companies, corporations, other 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, and foreign entities registered to do business within the United States ("Reporting Companies")—to register with FinCEN and provide FinCEN with certain limited personal information regarding their beneficial owners and company applicants.
By December 31, 2024, all non-exempted Reporting Companies formed prior to January 1, 2024 ("Pre-Existing Reporting Companies") must make a FinCEN filing. There is no grace period beyond December 31, 2024, for Pre-Existing Reporting Companies. Entities formed during 2024 have 90-days to make an initial FinCEN filing, while entities formed in 2025 and beyond will have 30-days to complete their initial filings.
Exempt Entities
Although broadly inclusive, there are twenty-three (23) categories of entities that are exempt from reportingaltogether. Notable exempt entities include:
- entities with over twenty (20) full-time U.S. employees, $5 million in gross revenue, and a physical U.S. office;
- financial services institutions that are already regulated by the Securities and Exchange Commission, Federal Deposit Insurance Corporation, or Comptroller of the Currency;
- subsidiaries that are 100% owned by exempt entities; and
- churches, charities, 501(c) nonprofit entities, and charitable trusts.
Reporting Information
A Reporting Company must report the following information about itself:
- its full legal name and any d/b/a names;
- the street address of its principal place of business;
- for a foreign Reporting Company, the street address of the primary location in the U.S where it conducts business;
- the Tax Identification Number (TIN) of a domestic Reporting Company or a foreign TIN for a foreign Reporting Company without a U.S. TIN.
Besides reporting information about itself, Reporting Companies must also report the following information about each Beneficial Owner and Company Applicant (though Pre-Exiting Reporting Companies are not required to report information on their Company Applicants):
- full legal name;
- dates of birth;
- current residential or (for Company Applicants only) business street address;
- unique identifying numbers from an acceptable identification document, such as passports and drivers' licenses; and drivers' licenses; and
- a copy of the identification document.
Beneficial Owners and Company Applicants of Reporting Companies also have the option to acquire a FinCEN identification number (a "FinCEN ID"). To obtain a FinCEN ID, Beneficial Owners and Company Applicants should follow the prompts on the fincen.gov/boi website and provide the above listed information directly to FinCEN. After obtaining a FinCEN ID, Beneficial Owners and Company Applicants can provide their FinCEN ID to Reporting Companies in lieu of the required reporting information.
All reporting is done electronically at fincen.gov/boi.
Continuing Reporting Obligations
All Reporting Companies, including Pre-Existing Reporting Companies, have a continuing obligation to update information about themselves and their Beneficial Owners. Changes to Reporting Company information, Beneficial Ownership information, or exemption status must be reported within thirty (30) days of such changes. Reporting Companies are not required to update information regarding their Company Applicants.
Any Beneficial Owner or Company Applicant that has a FinCEN ID must update any changes to their information directly with FinCEN within thirty (30) days of such change.
Litigation Challenges to the CTA and Legislative Delays in Enactment
On March 1, 2024, the United States District Court for the Northern District of Alabama (National Small Business United v. Yellen), in a memorandum opinion, ruled that the CTA was unconstitutional because it exceeded the powers granted to Congress under the Constitution (National Small Business United, d/b/a the National Small Business Association v. Yellen, No. 5:22-cv-1448-LCB (N.D. Ala. 2022)). Although this case creates uncertainty about the future of the CTA, as of now the court order only enjoins FinCEN from enforcing the CTA against the plaintiffs in that case. The court's decision is currently on appeal with the 11th Circuit (oral arguments were heard on September 27, 2024).
On September 20, 2024, the United States District Court of Oregon in (Firestone et al v. Yellen et al (3:24-cv-01034), Oregon District Court) rejected a preliminary injunction motion to enjoin enforcement of the CTA on a myriad of constitutional grounds. The Oregon court found the plaintiffs to be unlikely to succeed on the merits of their claims.
A case in the United States Northern District Court of Ohio, Robert J. Gargasz Co., L.P.A. et al v. Secretary of the Treasury et al (1:23-cv-02468) has been stayed pending the decision of the 11th Circuit in National Small Business United v. Yellen.
In each of the United States Maine District Court, Boyle v. Yellen et al (2:24-cv-00081), the United States Western District Court of Michigan, Small Business Association of Michigan et al v. Yellen et al, and the United States District Court of Utah, Taylor v. Yellen et al (2:24-cv-00527) the parties are still in the preliminary motion phase, including the trading of motions to dismiss and motions for summary judgement.
In the United States Eastern District Court of Texas, Texas Top Cop Shop, Inc., et al v. Garland et al a hearing for a motion for preliminary injunction was held on October 9, 2024, but no ruling on the motion yet has been made.
In a proceeding in the United States District Court of Massachusetts, Black Economic Council of Massachusetts, Inc. et al v. Yellen et al (1:24-cv-11411), deadlines for motions for summary judgement and oppositions thereto have been extended with nothing scheduled to be heard before February 2025.
There is pending legislation in Congress, H.R. 9278, delaying compliance with the reporting requirement of the CTA as against Pre-Existing Reporting Companies until December 31, 2025, but that legislation has been stalled since the day it was introduced on August 2, 2024.
Currently, we believe that it is still proper (and prudent) for companies and their advisors to comply with the reporting requirements of the CTA. We have seen nothing in legislation or the courts that lead us to believe that Pre-Existing Reporting Companies will be given an extension by which to make their filings with FinCEN or relieve them altogether from having to follow the filing requirements of the CTA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.