& Sarah Reeves | Senior Manager
Latest Updates as of January 2, 2025
On December 26, the Fifth Circuit issued an order vacating the December 23 order granting the DOJ’s motion to stay the district court’s preliminary injunction. The Fifth Circuit cited a desire “to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.” The Fifth Circuit expects to receive briefs by February 28, 2025, and hear oral arguments on March 25, 2025.
The DOJ appealed to the Supreme Court of the United States on December 31, 2024, to have the preliminary injunction lifted. FinCEN previously extended the original due date of 1/1/25 to 1/13/25 after the initial preliminary injunction was lifted. It is unclear whether FinCEN will extend that date further out.
FinCEN, per its statement on its website, has confirmed that reporting companies are “not currently required to file beneficial ownership information with FinCEN while the order remains in force. However, reporting companies may continue to submit beneficial ownership information reports voluntarily.
What is the Corporate Transparency Act?
Recent news aside, let’s take a quick refresher on the purpose of the CTA — which was the government’s way to shine a light on who really owns and controls businesses in America. Launched on January 1, 2024, it’s designed to combat financial crime by requiring both domestic and foreign “reporting companies” to disclose their “beneficial ownership information” to the Financial Crimes and Enforcement Network (FinCEN).
The “beneficial ownership” disclosure is a one-time filing, unless of course ownership or control changes. Individuals who own 25% or more of an entity and/or exercise substantial control, must disclose their full legal name, date of birth, address, and provide a photocopy of a government-issued identification, adding an extra layer of detail to the reporting process.
- Entities formed before January 1, 2024, have until January 1, 2025, to complete the filing.
- Entities created after January 1, 2024, must disclose beneficial ownership within 90 days of formation.
- Entities formed after January 1, 2025, must disclose beneficial ownership within 30 days of formation.
Who Needs to Report? (And Who Doesn’t?)
While the CTA aims to curb financial crime, the law also creates new challenges for small businesses, as many will not meet one of its exceptions. Before you dive into compliance mode, let’s see if your business falls into one of these exception categories.
You might be exempt from reporting if you’re a:
- Financial Sector Player:
- Banks, credit unions, and other depository institutions
- Money service businesses
- Brokers or dealers in securities
- Securities exchange or clearing agencies
- Investment companies or investment advisors
- Venture capital fund advisers
- Insurance companies and state-licensed insurance producers
- Securities reporting issuers
- Other Exchange Act registered entities
- Financial market utilities
- Government and Public Service Entity:
- Governmental authorities
- Public Utilities
- Professional Service:
- Accounting firms (registered under the Sarbanes-Oxley Act)
- Entities registered under the Commodity Exchange Act
- Tax-Exempt Organization:
- Tax-exempt entities
- Entities assisting tax-exempt entities
- Large Operating Company – You’re exempt if you meet all three criteria:
- More than 20 full-time employees
- Over $5 million in gross receipts (shown on last year’s tax return)
- A physical office in the United States
- Other Notable Exceptions:
- Pooled investment vehicles
- Subsidiaries of certain exempt entities
- Inactive entities
But here’s the catch – these exceptions can be more complex than they appear at first glance. What looks like a straightforward exemption might have some nuances that could affect your status. That’s why we strongly recommend getting a legal opinion if you think you might qualify for an exemption.
Penalties for CTA Noncompliance
Noncompliance with the CTA carries significant penalties, including civil fines of $500 per day (and that’s adjusted for inflation), and/or even criminal penalties of $10,000 and imprisonment for up to 2 years.
Three Steps to Success Right Now
Even with the current legal uncertainty, here’s how to stay ahead of the game:
- Do a Business Structure Deep Dive: Businesses should take inventory of their corporate family tree. Look at each entity individually—yes, even those LLCs you might think of as just pass-through entities. For each reporting entity, identify the beneficial owners and those exercising substantial control over the entity.
- Create Your CTA Game Plan: Establish a policy that outlines who’s responsible for what. Remember, you’ll need to report changes within 30 days, so it’s important to be able to deploy a rapid response team if/as needed.
- Get Your Filing Ready: While the January 1, 2025, deadline is currently in limbo due to the injunction, staying prepared is your best strategy. You may continue to file BOI reports, and given the Department of Justice’s previous appeal position, the preliminary injunction may be short-lived. Visit www.fincen.gov/boi when you’re ready to file.
The Bottom Line
We’re in interesting times with the Corporate Transparency Act. While there’s some legal drama playing out, the smart move for small businesses is to stay prepared. Keep gathering your information, know your requirements, and stay tuned for updates.
Remember: Compliance might seem complex, but breaking it down into manageable steps makes it much less daunting. We’re here to help you understand and prepare for the process, even though we won’t be filing the reports for you.
