Corporate Transparency Act reporting requirements are moving forward

By William Kocher, CPA

Following the implementation of the Corporate Transparency Act (CTA) on January 1, which introduced new reporting requirements for U.S. companies, the mandate became the target of an ongoing legal battle.

Despite a federal district court in Alabama finding the reporting requirement unconstitutional in March, the Financial Crimes Enforcement Network (FinCEN), which enforces it, has said that while its appeal is pending, only the parties directly involved in the lawsuit do not have to comply.

While the American Institute of CPAs (AICPA), the American Bar Association and others have urged delaying CTA’s implementation, a FinCEN press release issued following the ruling in National Small Business United v. Yellen made it clear the agency is moving forward:

"Other than the particular individuals and entities subject to the court’s injunction, as specified below, reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations."

FinCEN is complying with the court’s order and will continue to comply with the court’s order for as long as it remains in effect. As a result, the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.

Because of FinCEN’s position, we advise businesses to adhere to the requirements and reporting deadlines.

Reporting requirements

CTA requires reporting companies to identify and report “beneficial owners,’’ defined as individuals who either exercise substantial control over the company directly or indirectly or hold an ownership interest of 25 percent or more. This includes senior officers, individuals with the power to make significant decisions, and those with the authority to appoint or remove senior officers or board members.

Certain reporting companies are exempt from the reporting requirements, including:

• Publicly traded companies
• Banks
• Credit Unions
• Investment Companies
• Large operating companies with more than 20 full-time employees, over $5 million in gross receipts or sales, and a physical office in the U.S.

In addition to the five exemptions above, there are 18 other possible exemptions. For more information on these other exemptions and the information companies must disclose, visit https://www.cpabr.com/article-navigating-the-corporate-transparency-act

Reporting deadlines and penalties

FinCEN is enforcing the following Beneficial Ownership Information (BOI) reporting deadlines:

• Reporting companies formed before January 1, 2024: Reports must be filed by January 1, 2025.
• Reporting companies established in 2024: Reports must be filed within 90 days of the company’s formation.
• Reporting companies established in 2025 and after: Reports must be filed within 30 days of the company's formation.

Companies must file their BOI report electronically with FinCEN.  Visit https://www.fincen.gov/boi  for additional information on filing the report.

Failing to comply with the new regulations carries severe penalties, including:

• Civil penalties: $500 per day until compliance. This civil penalty is adjusted annually for inflation.
• Criminal penalties: Fines up to $10,000 and up to two years in prison.

There is, however, a 90-day grace period for correcting unintentional errors.

Bottom line

Whether the courts will stop the Corporate Transparency Act remains to be seen, but for companies required to file reports the risk of noncompliance is simply too great.

If you have any questions regarding your organization’s compliance with the CTA, please contact Boyer & Ritter at BeneficialOwnerIR@cpabr.com as soon as possible. We can help guide you in evaluating your specific situation and assist you with meeting the reporting requirements.