Perhaps one of the most underrated stories of the year is the impending deadlines resulting from the Corporate Transparency Act (CTA). The purpose of this article is to explain what the CTA is, which entities it affects, who within those entities are subject to requirements, the deadlines to comply, and penalties for non-compliance. This article provides updates and clarification to an earlier report published in May 2024 by my colleague, Prof. Andrew Brannan, JD.

Corporate Transparency Act (CTA) & Financial Crimes Enforcement Network (FinCEN)

On January 1, 2021, Congress enacted the National Defense Authorization Act for Fiscal Year 2021. The Corporate Transparency Act (CTA) was part of this broader legislation.

The CTA was passed in order to fight criminal actions – everything from white collar crimes such as fraud and money laundering to more heinous acts such as human trafficking – being taken under the guise of shell companies (i.e., companies without a legitimate business purpose or assets that exist to hide actions of bad actors).

To combat these bad actors, Congress tasked the Financial Crimes Enforcement Network (FinCEN) with overseeing reporting requirements created under the CTA. FinCEN is an agency under the United States Department of Justice (DOJ) – not the Internal Revenue Service (IRS).

Beneficial Ownership Information (BOI)

Put simply, the CTA requires beneficial ownership information (BOI) reports to be filed with FinCEN by entities that are otherwise not subject to disclosure regulations. Obviously, there’s a lot of very dense legal language in that sentence. CTA and FinCEN were described above, but what is a BOI report? And what entities have to file BOI reports?

BOI Reports

It’s important to note that not every employee of an applicable entity has to submit a BOI report, only the ‘beneficial owners.’  Beneficial owners are defined as those individuals who “directly or indirectly own or control a company.”

FinCEN provides additional guidance here, as this definition is pretty vague. Specifically, a beneficial owner is any individual who, directly or indirectly, exercises substantial control over the entity OR owns or controls at least 25% of the ownership interests of a reporting company. FinCEN provides a Small Entity Compliance Guide that further defines these terms, but there’s also some terminology that, at this point, is still unclear. The Author will produce a subsequent article based solely on this topic (once written, it will be linked here).

Each beneficial owner of a company will have to report their name, date of birth, residential address, and an identifying number from acceptable identification (e.g., passport, driver’s license, etc.). For the identification, a copy will need to be uploaded.

Each reporting company will have to report their legal name, any trade names (e.g., d/b/a names or t/a names), the current street address of its principal place of business, its jurisdiction of formation or registration, and its taxpayer identification number (TIN). If the principal place of business is outside of the United States, then the company should report the current address from which the company conducts business in the United States (e.g., the company’s U.S. headquarters).

Entities Subject to Reporting Requirements

The following list is a non-comprehensive list of entities that are subject to BOI reporting requirements:

• Limited Liability Company (LLC)
• S Corporations
• C Corporation
• Professional Limited Liability Company (PLLC)
• Professional Corporation (PC)
• Limited Partnership (LP)
• Registered Limited Liability Partnerships
• Limited Liability Limited Partnerships

Entities Not Subject to Reporting Requirements

The following list is a non-comprehensive list of entities that are not subject to BOI reporting requirements:

• Sole proprietorship (if not incorporated into, e.g., an LLC)
• General partnership (if not incorporated into, e.g., an LLC)
• Trust
• Nonprofit Corporation

Deadlines for Compliance & Penalties for Non-Compliance

Deadlines for Compliance

Reporting companies created or registered before January 1, 2024 must file their BOI report on or before January 1, 2025.

Reporting companies created or registered between January 1, 2024 and January 1, 2025 have 90 days after creation or registration to file their BOI report.

Reporting companies created or registered after January 1, 2025 have 30 days after creation or registration to file their BOI report.

Penalties for Non-Compliance

Violations of these requirements, such as failure to report, failure to update reports, and providing false or fraudulent information within reports, can result in fines up to $500 per day (an amount subject to an index for inflation) for each day that the violation continues as well as criminal penalties up to 2 years in prison and an additional $10,000 fine.

Other Pertinent Questions

How much does it cost to file BOI reports with FinCEN?

There is no charge to file BOI reports with FinCEN.

How long does it take to file a BOI report?

This depends on your entity, how many members are considered beneficial owners, how quickly you can reach out to them for their information, among other factors. Prior to taking this job, the Author filled out one or two BOI reports for his employer (basic LLC with one owner), and those took less than 5 minutes for each report. User experience may vary. A careful reading of the requirements is advised before completing the form in order to ensure accurate reporting.

Do I have to submit a BOI report for my revocable trust to FinCEN?

No, you do not have to submit a BOI report for your revocable trust to FinCEN.

If my revocable trust owns an entity covered under the CTA (e.g., LLC, LLP, etc.), do I report the revocable trust as the beneficial owner?

No, in this case, a revocable trust is considered a disregarded entity. Only the trustees of the revocable trust would be considered a beneficial owner. Contact an attorney and/or CPA for more details.

What about the legal challenges to the CTA? Don’t those legal challenges mean that beneficial owners aren’t really subject to FinCEN’s requirements?

The short answer is no, but the long answer has a couple of limited caveats.

The most notable legal challenge thus far is National Small Business United et al v. Yellen et al, No. 5:2022cv01448 (N.D. Ala. 2024). In National Small Business, the United States District Court for the Northern District of Alabama ruled that the CTA exceeded congressional authority, rejecting the DOJ’s claim that Congress did have such power under the Commerce Clause or the Tax and Spending Clause. The DOJ filed an appeal to the United States Court of Appeals for the 11th Circuit.

While the appeals process plays out, the DOJ noted that it would continue to enforce the CTA as described herein. The DOJ noted that the plaintiffs – Isaac Winkles and members of the National Small Business Association (as of March 1, 2024) – would not be subject to the CTA’s reporting requirements while the appeals process continued. Importantly, businesses that joined the Small Business Association (SBA) after March 1, 2024 would still be subject to the CTA’s reporting requirements.

What if I have other questions not answered in this article?

The Author is in the process of drafting a more comprehensive article on this subject. FinCEN also has a pretty lengthy FAQ on their website. In the meantime, it seems like attorneys and CPAs have played a game of hot potato with this topic, with each profession claiming it is the other profession’s responsibility to their clients to ensure clients are aware of this issue.