The federal Corporate Transparency Act ("CTA") mandates that a vast majority of business entities in the United States report their beneficial ownership information ("BOI") to the federal Financial Crimes Enforcement Network ("FinCEN"). The CTA went into effect for new entities beginning January 1, 2024. However, entities formed before that date have until January 1, 2025 to report their BOI.
Litigation Status
A number of businesses and nonprofits have filed suit to prevent the CTA from going into effect. As yet, none of that litigation has successfully stopped the CTA generally. In the US District Court for the Northern District of Alabama, Judge Liles Burke granted summary judgment in National Small Business United v. Yellen (Case No. 5:22-cv-01448), holding that the CTA "is unconstitutional because it cannot be justified as an exercise of Congress' enumerated powers."Â However, that matter is on appeal to the 11th Circuit (oral arguments were heard on September 27, 2024). While that case is on appeal, the CTA remains in effect.
There are a few other cases, namely in the District of Oregon (preliminary injunction denied), Eastern District of Texas (preliminary injunction requested but not yet heard), and a handful of others. However, businesses should not depend on these cases going their way nationally prior to January 1. That means that reporting entities should be prepared to report on or before January 1, 2025.
What is a "reporting company"?
A "Reporting Company" is any domestic entity formed or foreign entity registered in the United States with a state Secretary of State or similar state or tribal entity. Heckman Law, PC is a professional corporation formed by filing its articles with the California Secretary of State. Heckman Law, PC is thus a "Reporting Company."
If you formed an LLC or corporation, your entity probably qualifies as a "reporting company" for purposes of the CTA unless there is an applicable exclusion (e.g., nonprofit, certain large entities that already have reporting requirements).
Who is a "beneficial owner"?
A "beneficial owner" is one who (1) owns 25% or more of the Reporting Company, (2) directly or indirectly exercises substantial control over the Reporting Company, and (3) someone who forms an entity (or registers a foreign entity) on or after January 1, 2024.
This obviously leaves some room for debate as to whether a given individual is a "beneficial owner." Many entities are erring on the side of inclusion, while others (especially those formed for asset protection purposes) are doing their best to avoid reporting unless explicitly required to do so. In short, if you own 25% or more, are a director, are an officer, or are the individual actually forming the entity, you might want to look into the finer points of the CTA.
How do I report?
FinCEN has a form available at its website. It is fairly straightforward and (somewhat) user-friendly. I prefer to download the pdf version of the form and submit it that way. Note that if you download the pdf version and you can't open it in your browser, go to your downloads folder and open it from there. Or you might need to update your browser.
What information do I need to have?
The report will ask for contact information from 1) the person or entity submitting the form, 2) the entity itself, and 3) all beneficial owners. For individuals, it requests a residential address, identification information (usually from your driver's license), and a scanned copy of your identification. For the entity, you will need an EIN, or otherwise the tax identification number that you use for federal taxes.
What are the penalties for failing to report?
A person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. However, this civil penalty amount is adjusted annually for inflation (according to the FAQ, this amount was $591 in April 2024).
A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
If you missed your reporting deadline, you should still file your report. Notice that the knowledge requirement is "willfully."
As of today's date, Heckman Law, PC has not represented any entities in defending against enforcement of those penalties (this does not mean they aren't enforcing those penalties, just that we have not seen any such cases yet). Do your best to file before January 1, 2025.
What about entities formed in 2025?
Beginning in 2025, newly-formed entities will have 30 days for BOI reporting.
Conclusion
As of today's date, we are just over 60 days out from 2025. If you formed an entity in 2023 or earlier, it's time to contact your business attorney about beneficial ownership reporting. Avoid the penalties, avoid the backlog your attorney will no doubt have in December, and get it done.
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