Smith Eilers, PLLC
Note: On Friday, March 1, 2024, the U.S. District Court for the Northern District of Alabama held that the Corporate Transparency Act is unconstitutional[1].The Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”)clarified their interpretation of the ruling later the same day, stating that the ruling only applies to the specific plaintiff to that Alabama case, including the named Plaintiff and any member of the National Small Business Association, meaning that the ruling, as interpreted by FinCEN, only applies to 0.1%-0.2% of those small business owners that are subject to the reporting requirements of the Corporate Transparency Act. If your Company is one of those small businesses included within this judgment, you are not required to comply with the reporting requirements of the Corporate Transparency Act at this time, but keep an eye on the case and our updates here on the Smith Eilers blog because we expect that there will be more developments on this case in the future.
The Corporate Transparency Act (“CTA”), enacted by Congress on January 1, 2021, as part of the National Defense Authorization Act, went into effect on January 1, 2024. The purpose of the CTA is to prevent and combat corruption, money laundering, terrorist financing, and tax fraud, in addition to increasing transparency regarding Beneficial Ownership Information (“BOI”) of legal entities. Most business entities, with a few specific exemptions, formed prior to January 1, 2024, both domestic and foreign, are required to file an initial report by January 1, 2025, and file regular updated BOI reports thereafter. If a business entity is formed after January 1, 2024, or becomes a foreign reporting company in 2024,that entity must file a BOI report within 90 days of receiving notice that it has been effectively registered to do business. If a business entity is formed or registered on or after January 1, 2025, that entity will have 30 days to file their initial BOI report after receiving notice that it has been effectively registered to do business.
The reporting requirements of the CTA apply to both domestic and foreign reporting companies, including corporations, limited liability companies, and any other entity created by or registered by filing a document with a Secretary of State or similar office. There are 23 exemptions to who is subject to the reporting requirements of the CTA. The most notable exemptions from the reporting requirements are Securities Exchange Act issuers, Broker/Dealers in securities, other Exchange Act registered entities, tax exempt entities, and large operating companies (as specifically defined in the CTA). If you have any questions regarding your company’s exemption status, please feel free to reach out to us at Smith Eilers!
So, what are the reporting requirements of the CTA if your company does not qualify for an exemption, and what will happen if you do not file as required? Your initial report must be filed before January 1, 2025, if your company was formed prior to January 1, 2024, and must include information on the reporting company, information on every beneficial owner, and information on every company applicant. If you are unsure whether you or your shareholders qualify as a beneficial owner under the definitions of the CTA, Smith Eilers can help! The CTA also includes specific requirements for company applicants, which include individuals who directly file documents creating the company, and individuals who direct or control the filing of documents creating the company. If your company, beneficial owner, or company applicant fails to comply with the reporting requirements, they can be liable for civil penalties up to $500 per day until the violation is corrected, and criminal penalties up to 2 years of imprisonment and $10,000.
Please keep in mind that the CTA has specific updating requirements in addition to the initial reporting requirements. Here at Smith Eilers, PLLC, we are more than happy to help your company navigate the complexity of the CTA and ensure that you are meeting all reporting requirements.
[1] For more information on the March 1, 2024 judgment, please see https://www.wolterskluwer.com/en/expert-insights/corporate-transparency-act-ruled-unconstitutional-what-it-means-for-beneficial-ownership-reporting
