Focus Team: Corporate Transparency Act

Focus Team: Corporate Transparency Act

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, temporarily suspending the enforcement of the Corporate Transparency Act (CTA).

The Court determined that the CTA likely exceeds Congress’ constitutional authority, rendering it potentially unconstitutional. This decision effectively pauses the mandate for reporting companies to submit beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN).

As a result, the January 1, 2025, compliance deadline is currently on hold. However, this injunction is temporary, and the legal status of the CTA may change as the case progresses through the courts.

 What Should Businesses Do Now?

  • Stay Informed: Monitor updates on the CTA’s status, as future court decisions or legislative actions could alter current obligations.
  • Be Ready to Act: If the suspension is overturned, be ready to act swiftly in gathering beneficial ownership information to ensure compliance if reporting requirements are reinstated.
  • Consult Professionals: Engage with legal and compliance experts to understand how these developments impact your specific situation and to receive guidance on potential future requirements.

We are closely following this situation and will provide updates as more information becomes available.

For personalized advice, please contact our team at [email protected].

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General Information About CTA – Prior to December 3, 2024 Court Ruling

May 2024 Webinar Recording

Entities are now required to report personal information to the federal government pursuant to the Corporate Transparency Act (the “CTA”).

To avoid civil and criminal penalties for noncompliance, over one hundred thousand entities have filed beneficial ownership information reports (“BOIR”) to the Financial Crimes Enforcement Network (“FinCEN”) as of April 1, 2024. Although this filing total is significant, many entities have not yet filed and are hearing about the CTA for the first time.

What is the Corporate Transparency Act?

Effective as of January 1, 2024, the CTA requires “beneficial owners” of “reporting companies” to disclose personal information to FinCEN. These disclosures are meant to combat financial crimes, money laundering, and terrorism financing by enhancing transparency in corporate ownership structures.

For reporting companies formed prior to January 1, 2024, the reporting company has until the end of the year to file its BOIR. For reporting companies formed on or after January 1, 2024, the reporting company has 90 days from its formation to file its BOIR. Starting in 2025, this 90-day filing window will be reduced to 30 days.

Is my entity a “Reporting Company”?

As a general rule, if your entity was formed by filing a document with a government office, it is a “reporting company” and must comply with the CTA requirements. There are, however, exemptions to this general rule. For instance, banks, credit unions, insurance companies, and certain types of tax-exempt entities likely qualify for an exemption. Additionally, a large operating company is exempt if the entity has over 20 full-time employees and over $5 million in gross receipts or sales.

There are 23 total exemptions for which a reporting company may qualify. If no exemption applies, then your entity must report personal information about each of the entity’s beneficial owners, as defined by the CTA.

What is a Beneficial Ownership Information Report and who are beneficial owners?

A BOIR discloses personal information about the “beneficial owners” of your entity. This defined term is slightly misleading in that a beneficial owner does not need to be an owner of the entity. Instead, a “beneficial owner” is any individual who, directly or indirectly, (1) exercises substantial control over a reporting company or (2) owns or controls at least 25 percent of the ownership interests of the reporting company. Despite the clarity of the second prong, analyzing “substantial control” under the first prong can be challenging given the novelty of the CTA. This, however, may become clearer as more extensive guidance emerges.

What personal information must I disclose?

A beneficial owner is required to disclose several pieces of personal information to FinCEN. Specifically, the required disclosures include the beneficial owner’s first and last name, residential address, and a photo of either their driver’s license or U.S. passport.

In addition to the beneficial owner’s disclosures, the reporting company must disclose information such as its legal name, tax identification number, jurisdiction of formation, and principal address.

Is the Corporate Transparency Act here to stay?

The constitutionality of the CTA has been questioned in the legal field. Nevertheless, as of this writing, the CTA remains a binding law with which reporting companies must comply.

We will continue to monitor filings and rulings with respect to the constitutionality of the CTA and provide updates as they become available.

What resources are there to assist me with compliance?

If you have any questions related to the CTA, please contact Ruder Ware at [email protected]. Our team is happy to assist you with analyzing your entity’s CTA requirements.

If you’re interested in receiving updates on CTA, you can subscribe here.

 

Contact us at [email protected] for assistance.

Ding Dong, the CTA is DEAD!

Posted on December 3, 2024 by , and

A federal district court in Texas has issued a landmark decision postponing the enforcement of the Corporate Transparency Act (the “CTA”). The Court held that the CTA exceeds Congress’ power and is therefore likely unconstitutional. As a result, reporting companies are no longer required to comply with the CTA’s January 1, 2025, reporting deadline. As […]

Reminder: CTA Filing Deadline Looming

Posted on October 15, 2024 by , and

The Corporate Transparency Act (CTA) remains in effect, and, as a result, many entities are required to submit filings to the federal government by the January 1, 2025, deadline. A failure to timely file may result in civil and criminal penalties. Under the CTA, a “reporting company” must file a Beneficial Ownership Information Report (“BOIR”) […]

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Posted on July 30, 2024 by and

The Corporate Transparency Act (the “CTA”) imposes requirements on entities dissolved in 2024. Effective as of January 1, 2024, the CTA mandates entities disclose information about their “beneficial owners” to the Financial Crimes Enforcement Network (“FinCEN”). Previously, there was uncertainty about whether dissolved entities must report under the CTA. However, on July 8, FinCEN updated […]

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Posted on June 4, 2024 by and

A crucial aspect of compliance with the Corporate Transparency Act (“CTA”) is understanding the various due dates and obligations. A “reporting company” must meet CTA reporting deadlines to avoid potential regulatory penalties. To avoid such penalties for non-compliance, a reporting company must plan ahead to ensure there is sufficient time to conduct CTA analysis, gather […]

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Posted on May 28, 2024 by and

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New Filing Requirements – Corporate Transparency Act

Posted on May 15, 2024 by

The Corporate Transparency Act (CTA) is a recent enactment that mandates increased transparency in entity ownership structures, aiming to combat illicit activities such as money laundering and terrorism financing facilitated by anonymous entities, and has far-reaching implications for entities.  CTA was passed as part of the National Defense Authorization Act for Fiscal Year 2021 but […]

U.S. Treasury Clarifies Beneficial Ownership Reporting Requirements for Businesses

Posted on February 22, 2023 by

When it goes into effect on January 1, 2024, a provision tucked inside the Corporate Transparency Act (the “CTA”) will impose lengthy new reporting requirements on many business entities, including many single-member LLCs. The final rule recently issued by the U.S. Treasury Department’s Financial Crimes Enforcement Network clarifies the scope and applicability of these new […]

Who Benefits? The Corporate Transparency Act Requires Companies to Disclose Their Beneficial Owners Under New Federal Rules

Posted on February 3, 2023 by

To do business in Wisconsin, a business owner needs to file numerous documents with federal, state, and local governments. Congress recently added a new one. Under the Corporate Transparency Act, most corporations, LLCs, and similar company types doing business in the United States must file a report divulging the personal information of anyone who “controls” […]