The Corporate Transparency Act
Important Court decision puts enforcement in question
Last Updated: March 5, 2024
On March 1, 2024, a U.S. District Judge in Alabama ruled that the Corporate Transparency Act (CTA) is unconstitutional. The Constitution limits Congress’s authority, and the Court held that the CTA exceeded those limits.
Accordingly, the Court ruled that the U.S. Treasury Department and FinCEN shall not enforce the CTA against the plaintiffs in that case. It is currently unclear as to the implications of this ruling against persons not party to that case or outside of Alabama. We expect the government to appeal the judgement.
For the time being, the Court’s decision leaves the CTA in limbo as there will almost certainly be further developments. We encourage you to consult Wood + Lamping LLP’s Corporate Transparency Act attorneys with any questions.
Original Scope and Deadlines
Last Updated: December 18, 2023
A new federal law will require business entities to report their ownership information to the Financial Crimes Enforcement Network (FinCEN). On January 1, 2021, Congress enacted the Corporate Transparency Act (CTA) as part of the National Defense Authorization Act for 2021. The U.S. Department of the Treasury and FinCEN adopted Regulations implementing the CTA on September 30, 2023.
Under the CTA, certain “reporting companies” will be required to disclose personal information regarding their beneficial owners to FinCEN. The stated purpose of the filing requirement is to counter money laundering and the financing of terrorism, by hindering criminals from utilizing shell companies to launder money or evade taxes. While the CTA appears to target shell companies, its language is broad enough to ensnare most small businesses and real estate LLCs.
An Important Note for Wood + Lamping Clients
The Corporate Transparency Act is a new law that requires disclosure of personal information. We will NOT file an ownership report for you WITHOUT a signed engagement letter requesting us to do so.
When Will Reporting Begin?
- Any domestic reporting company created on or after January 1, 2024 must file a report within 90 calendar days of its formation. Any reporting company formed on or after January 1, 2025 is required to file a report within 30 calendar days of its formation.
- Any domestic reporting company created before January 1, 2024 must file a report no later than January 1, 2025.
“Reporting companies” are defined as any corporation, limited liability company or “similar entity” that was created by filing a document with a Secretary of State, or was formed under the law of a foreign country and registered to do business in the U.S. by filing a document with a Secretary of State.
Exceptions
- “Large operating companies” employing more than 20 full time employees in the U.S. that have (a) previously filed federal tax returns; (b) more than $5 million in gross receipts or sales; and (c) an operating presence at a physical office in the U.S.
- Certain inactive companies
- Companies subject to existing regulatory reporting requirements, i.e., banks, investment companies, brokers or dealers in securities, certain tax-exempt entities
Information to be Reported
The identity of the Company’s “beneficial owners” — defined as an individual who, directly or indirectly, either “exercises substantial control over such reporting company ” or “owns or controls at least 25% of the ownership interests of such reporting company”:
- Full legal name of each beneficial owner
- Date of birth
- Residential street address
- Identification number – driver’s license or passport number
- An image of the document from which the identification number was obtained.
A corporation or an LLC with a multi-layered ownership structure must drill down to the individuals who ultimately exercise substantial control over or own or control at least 25% or more of the ownership interests for reporting purposes.
Updating Reports in the Future
If there is any change with respect to required information previously submitted to FinCEN concerning a reporting company or its beneficial owners, including any change with respect to who is a beneficial owner or information reported for any particular beneficial owner, the reporting company must file an updated report within 30 calendar days after the date on which such change occurs.
Penalties for Non-Compliance
Violations of the CTA carry civil penalties of up to $500 for every day the violation continues and criminal fines of up to $10,000 and/or imprisonment for up to two years. Senior officers of a reporting company may be liable for penalties as well.
What to Do Regarding the Corporate Transparency Act
Our experienced team of business law attorneys is available to help you understand this new reporting requirement and file the necessary information to comply with this new law. As with any new law, there will continue to be more information and understanding as this reporting standard is enforced.
If you are a current Wood + Lamping client, please do not assume that we will file on your behalf. This new law requires disclosure of personal information, and as such, we will NOT file a report for you without a signed engagement letter requesting us to do so.
If you are interested in learning more about The Corporate Transparency Act or would like legal counsel on how to file your ownership report, please contact your Wood + Lamping attorney or fill out the form below, and one of our experienced attorneys will be in touch.
