On January 1, 2024, the Corporate Transparency Act (CTA) became effective, thereby imposing significant new reporting requirements on more than 32,000,000 small businesses.
The stated purpose of the CTA is to expose illegal activities, including the use of shell companies and other opaque ownership structures to launder money and evade taxes. To help uncover such conduct, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has been charged with establishing a federal database of information furnished by “reporting companies” required to disclose Beneficial Ownership Information (BOI) about the individuals who own and control such entities. Database information will be accessible to certain federal agencies and state and local law enforcement authorities.
During the past several months, a number of lawsuits have been filed challenging the constitutionality of the CTA. To date, none of those lawsuits has resulted in meaningful relief for “reporting companies” required to make BOI filings with FinCEN.
Accordingly, if you are a business subject to the CTA, it is imperative that you promptly initiate action to timely comply with the CTA’s reporting requirements.
As a reminder:
- For business entities that existed prior to January 1, 2024, the deadline for filing an initial BOI report with FinCEN is January 1, 2025.
- However, for business entities that were formed on or after January 1, 2024, such entities must file an initial BOI report with FinCEN within 90 days following the date of their formation under state law.
A business entity’s failure to timely file a BOI report via FinCEN’s electronic system can result in the imposition of both civil and criminal penalties.
Lastly, FinCEN recently noted that as of July, 2024, only about 5,000,000 of the expected 32,000,000 BOI reports had been submitted to FinCEN. Some observers believe that a surge of last-minute filings could overwhelm FinCEN’s electronic filing system. Consequently, we recommend that business entities subject to the CTA promptly address their filing obligations under the CTA.
Explore our recent article outlining the resources available to assist in complying with the Corporate Transparency Act.