Important Update (Edited January 31, 2025)
IMPACT OF ONGOING LITIGATION
Please be advised that on December 3, 2024, in the case Texas Top Cop Shop v. McHenry—formerly Texas Top Cop Shop v. Garland, a federal judge in the US District Court for the Eastern District of Texas entered a preliminary injunction enjoining the Corporate Transparency Act (CTA) and its enforcement nationwide because the Court found that the CTA is likely unconstitutional. The U.S. Department of Justice, acting on behalf of the Treasury Department appealed the Texas Top Cop Shop decision to the Fifth Circuit Court of Appeals and ultimately to the U.S. Supreme Court, which on January 23, 2025 ruled to stay the nationwide injunction but left the merits of the appeal, including the constitutionality of the CTA, to be decided by the Fifth Circuit. The Fifth Circuit is scheduled to hear oral arguments in the Texas Top Cop Shop appeal on March 25, 2025.
In the interim, on January 7, 2025, a different federal judge in the US District Court for the Eastern District of Texas issued an order in a separate case, Smith v. United States Department of the Treasury, that applies nationwide and stays the effective date of the reporting rule under the CTA until the resolution of the Smith case. To date, the federal government has not appealed the Smith order, and the U.S. Supreme Court did not address the Smith order in its opinion staying the preliminary injunction in the Texas Top Cop Shop case.
FinCEN has responded to the various decisions in the Texas Top Cop Shop and Smith cases by informing reporting companies on January 24, 2025 that they are not required to file beneficial ownership information and are not subject to liability if they fail to do so while the Smith order remains in force. However, FinCEN has also indicated that reporting companies may continue to voluntarily report their beneficial ownership information to FinCEN.
It is not clear how much time will be allotted to reporting companies to again comply with their CTA reporting requirements if and when the Smith order is overturned, thereby lifting the stay for compliance, or the constitutionality of the CTA is ultimately decided in the Texas Top Cop Shop case and/or other CTA-related cases that are currently pending in other federal courts. Please consult with an attorney if you have questions about the impact of this litigation and for advice specific to your situation.
Original Article (Posted August 20, 2024)
As of January 1, 2024, many business entities and some trusts are required to report beneficial ownership information (BOI) to the U.S. government under the new Corporate Transparency Act (CTA).
The CTA is meant to help combat terrorism, money laundering, tax abuse, and other financial crimes.
New and existing business entities that meet the CTA’s definition of a Reporting Company and that do not fall under any exemptions, will need to file information about the entity and the individuals who own and/or control the entity, with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) – through an online form available at https://www.fincen.gov/boi.
Entities created on or after January 1, 2024, will also need to submit information on company applicants.
Do the CTA reporting requirements apply to my business entity?
Entities should determine if the CTA and the new reporting requirements apply to them. The CTA applies to certain existing and new domestic and foreign corporations, LLCs, LLPs, LLLPs, most limited partnerships, and other business entities – including any entity that is created or registers by filing a document with the Secretary of State or a similar state agency. Entities required to report are called Reporting Companies.
The CTA exempts 23 types of entities that may fall under the definition of a Reporting Company. Large operating businesses that employ more than 20 full-time employees, have a physical office in the United States and have annual revenues of more than $5 million fall within one of the 23 exceptions. Many financial institutions, insurance companies, certain inactive entities, certain non-profit organizations and tax-exempt entities, and governmental authorities are exempt.
My business entity needs to comply with the CTA: What beneficial ownership information will I need to report to FinCEN?
Beneficial ownership information includes:
- Full name
- Residential address
- Birthdate
- FinCEN Identification number or other acceptable identification document such as a passport or U.S. driver’s license, and the name of the issuing state or jurisdiction of the identification document. An image of the document must also be submitted.
When do I need to submit beneficial ownership information?
Entities formed on or after January 1, 2024, will need to report BOI and company applicant information within 90 days of the entity’s formation date. On and after January 1, 2025, new entities will need to report within 30 days of the entity’s formation date.
Entities formed prior to January 1, 2024, will have until January 1, 2025 to report BOI.
Please note that the obligation to report BOI will be an ongoing requirement, which means if the Reporting Company or a beneficial owner changes their name or residential address, the BOI needs to be updated with FinCEN.
Businesses and their controlling owners who are required but fail to report complete or updated BOI or who report false or fraudulent information can face significant civil penalties of up to $500 per day and/or criminal penalties of up to $10,000 in fines and/or imprisonment of up to 2 years.
FinCEN Resources
For more information, please access the resources provided on the FinCEN website.
Contact Us
Monroe Moxness Berg has formed a committee to track the CTA and related developments and is helping clients navigate this new law. If you would like assistance, please reach out to John Remakel at [email protected] or Monica Pelkey at [email protected], or the MMB attorney you regularly work with.