In an effort to combat illicit financial activities such as money laundering, terrorism financing, and tax fraud, the Corporate Transparency Act (CTA) was enacted as part of the Anti-Money Laundering Act of 2020. The CTA aims to increase transparency by requiring certain businesses to report information about their beneficial owners and controlling persons to the Financial Crimes Enforcement Network (FinCEN).
***UPDATE 1*** – An Opinion and Order filed on December 3 in the U.S. District Court, Eastern District of Texas enjoined enforcement of the CTA, including the CTA’s reporting requirements, on a nationwide basis, pending the outcome of the Court’s decision on the merits of whether the CTA violated several provisions of the U.S. Constitution, including the Fourth, Ninth and Tenth Amendments (intrusion on states’ rights, requiring individuals to disclose private information, impingement on rights of speech and free association).
***UPDATE 2*** – On December 23, 2024, a three-judge panel of the 5th U.S. Circuit Court of Appeals reversed the above-described U.S. District Court decision. The Court of Appeals ruling allows the rule to be enforced as the case proceeds. The appeals court said the U.S. Department of Justice “made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality.” After the ruling, FinCEN extended the reporting deadline from January 1, 2025 to January 13, 2025 for companies that were created or registered prior to January 1, 2024.
Who Needs to Report?
Businesses classified as “Reporting Companies” are required to comply with the CTA. These companies must provide information about individuals with “substantial control” over the business or those who own 25 percent or more of the equity in the business. The goal is to shed light on the individuals who ultimately control or benefit from these entities.
Reporting Deadline and Exceptions
Most companies are NOW required to file a report by JANUARY 13, 2024, unless they meet the criteria for the “large operating company” exception. To qualify for this exception, a business must have a physical street address in the United States, employ twenty-one or more full-time employees, and demonstrate more than $5 million in annual, U.S.-only, gross receipts or sales based on a prior year’s federal income tax return.
Additionally, the CTA includes twenty-three categories of businesses that are exempt from reporting. These exempt businesses are typically already extensively regulated by the federal or state government. One notable exemption is for “Inactive entities,” which are entities that meet specific criteria such as not being engaged in active business, not being owned by a foreign person, and not having experienced any change in ownership in the preceding twelve-month period.
How We Can Help
Whether you need guidance on determining your reporting obligations or assistance with filing your CTA report, we have the expertise to ensure compliance with the new regulations.
Contact us today to learn how we can assist you with your CTA filing.
The Corporate Transparency Act represents a significant shift towards greater transparency in corporate ownership and control. By requiring businesses to disclose information about their beneficial owners and controlling persons, the CTA aims to address concerns about illicit financial activities and enhance the overall integrity of the financial system.
As always, staying informed about regulatory changes and ensuring compliance with new requirements is essential for businesses of all sizes. If you have any questions or need assistance with your CTA reporting obligations, don’t hesitate to reach out to our team. We’re here to help you navigate the complexities of the Corporate Transparency Act and ensure that your business meets its reporting requirements.
We look forward to assisting you with your CTA filing needs.