The Corporate Transparency Act – “It Ain’t Dead Yet!”

Experts warn hikers that injured rattlesnakes can pretend to be dead but will attack if a person approaches too closely. Even dead rattlers have a strong bite reflex that lasts for hours after the snake has been eliminated, and the heads of decapitated rattlesnakes have been known to turn around and attack.

 

Just as injured vipers are still dangerous, FinCEN’s Corporate Transparency Act (CTA) has lost very little of its teeth despite the March 2024 federal court decision stating the Act exceeds the Constitution’s limits on Congress’s power. In National Small Business United v. Yellen, U.S. District Judge Liles C. Burke enjoined the Department of the Treasury and FinCEN from enforcing the CTA on the plaintiffs. Many small business owners assumed that was the end of the CTA.

 

Unfortunately, it isn’t.

 

On March 11, 2024, the office of the Secretary of the Treasury filed a Notice of Appeal. They also sent out a press release stating that while they would not be enforcing the CTA against the specific plaintiffs in NSBU v. Yellen and the NSBU’s 60,000 members, all other small businesses would still be expected to comply.

 

Of the estimated 36 million businesses needing to file a Beneficial Owner Information Report (BOIR), so far only 2 million, or 5%, have done so. Unfortunately, those non-compliant businesses are liable for criminal or civil penalties, including civil penalties of up to $500 per day up to $10,000.

 

Two new cases challenging the constitutionality of the CTA have also been filed in Maine and Michigan federal district courts. In addition, two bills have been introduced, one in the Senate and the other in the House of Representatives, seeking to overturn the CTA. Both are called the Repealing Big Brother Overreach Act and have been filed strictly along party lines. Neither have seen any movement forward since early May 2024.

 

If an action from Congress doesn’t reverse the CTA beforehand, it is quite probable that this case will end up before the Supreme Court. However, such a high court ruling would likely be years in the future.

 

The American Institute of CPAs, as well as major law firms, are counseling business owners to continue to comply with the CTA for the foreseeable future. While pushing to have the BOI reporting requirements suspended, the AICPA counsels, “FinCEN, who is authorized to enforce the CTA, has made it clear that reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.”

 

In its Compliance Guide, FinCEN defines a Reporting Company as a small corporation or LLC that employs 20 or fewer full-time employees in the United States and filed a federal income tax return for the prior year showing $5,000,000 or less in sales.

 

FinCEN discusses companies’ obligations regarding beneficial owners and company applicants. Beneficial owners are individuals who own or control at least 25% of the ownership interests of a reporting company. Company applicants are the one or two individuals who directly filed the document that created the reporting company.

 

Companies must provide four pieces of information on each Beneficial Owner:

 

Each reporting company must also submit its name and address and TIN. Additionally, reporting companies created on or after January 1, 2024, are required to submit information about the company applicants.

 

The BOI report should be filed using the FinCEN website and can be submitted in pdf format using a downloadable form provided by FinCEN or by interacting with FinCEN’s computer system.

 

FinCEN lists 23 exemptions to filing. The most common of these are:

 

More detailed information on the filing requirements and exemptions related to the CTA can be found in our January 2024 blog post.

 

As organized discontent with the CTA’s information disclosures and filing requirements grows, it is likely that the CTA will reach a point of reckoning in the not-too-distant future. This may come in the form of a high court ruling on the CTA’s unconstitutional overreach. Or congressional lawmakers may see the light and reverse their decision themselves. However, until this happens, the threat of a $500/day fine plus possible criminal penalties should be more than sufficient motivation for small businesses and their advisors to file the BOIRs as required by law.