Corporate Transparency Act Notification

Greetings from Fahlman Little Wheeler, PLLC. We wanted to take an opportunity to update our clients regarding recent legislation that may impact you beginning this year. 

In 2021, Congress passed the Corporate Transparency Act (“CTA”), aimed primarily at reducing money laundering and other misconduct occurring through business entities. The effective date of the CTA was January 1, 2024. In a nutshell, the CTA is a small business reporting requirement, which obligates the business to collect and report certain ownership information. A willful failure to report the required ownership information can carry both criminal and civil penalties. Let us repeat that failing to fill out this form is a potential felony with up to two years of prison time, plus a potential five hundred dollar ($500) daily penalty for each day that the violation continues.

If your current business is an LLC or corporation, including a single member LLC, you must fill out this form by the end of 2024. If you start a new business in 2024 (but before January 1, 2025), then you must report within ninety (90) days of formation. After January 1, 2025, a new business must report within thirty (30) days. There are some exemptions to the reporting requirements under the CTA, including but not limited to non-profit entities, companies registered under SEC rules, and large companies (which (i) employ more than twenty (20) employees on a full time basis in the United States; (ii) reported more than five million dollars ($5,000,000) in gross receipts or sales in the previous year’s federal income tax returns, and (iii) have an operating presence at a physical office within the United States). The general rule of thumb is that smaller companies are generally required to report.

Reporting is done with a special electronic filing with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN), not the IRS.

Initial Reporting Highlights

New companies

• Formed after January 1, 2024, but before January 1, 2025 – Must report within ninety (90) days of the earlier of (i) the date the reporting company has actual notice that the entity has been formed or, (ii) the date of public notice that the entity has been formed. This will generally be within ninety (90) days of the date of formation.

• Formed after January 1, 2025 – Must report within thirty (30) days of the earlier of (i) the date the reporting company has actual notice that the entity has been formed or, (ii) the date of public notice that the entity has been formed. This will generally be within thirty (30) days of the date of formation.

Existing companies

• Formed before January 1, 2024 – Must report by January 1, 2025.

Updates and/or Inaccuracies

• If any of the information reported by the reporting company changes (including change in beneficial ownership, name, or address change), the reporting company must update its report within thirty (30) days of the change.

• Any inaccuracy must be corrected within thirty (30) days of the date the reporting company becomes aware or has reason to know of the inaccuracy.

What Information Must be Reported?

For the Company or Entity:

Reporting Companies must provide the following information about the Reporting Company itself:

1. Full legal name according to the Secretary of State (download a “good standing” report);

2. Any trade name and/or “doing business as” names used by the Reporting Company;

3. A complete current street address of the principal place of business (a P.O. Box or the address of a third party agent, such as a company formation agent, does not comply with this requirement);

4. The state, tribal or foreign jurisdiction of formation;

5. The IRS Taxpayer Identification Number (TIN) or Employer Identification Number (EIN).

As noted above, a change of any of these 5 items at any time must also be reported within thirty (30) days to the Financial Crimes Enforcement Network, including an address or owner change.

For the “Beneficial Owners*” and “Company Applicants**”:

• * “Beneficial Owners” are individuals who, directly or indirectly, exercise substantial control over the entity or who own or control at least twenty five percent (25%) of the ownership interest of the entity (Note – The reporting must include information for each owner).

• ** “Company Applicant” is the person who actually files the document that forms the entity for domestic companies. Also includes anyone who directs or controls the filing of the document by another (Note - Reporting Companies in existence as of January 1, 2024, will not have to report company applicants).

Reporting Companies must provide the following information about the Beneficial Owners and Company Applicants:

1. Full legal name and date of birth;

2. Residential Street Address;

3. Unique identifying number and the issuing jurisdiction from one of the following documents: (i) a non-expired passport issued to the individual by the United States government, (ii) or a non-expired identification document issued to the individual by a State, local government, or Indian tribe for the purpose of identifying the individual, (iii)or a non-expired driver’s license issued to the individual by a State, or (iv) a non-expired passport issued by a foreign government to the individual, if the individual does not possess any of the other documents described; and

4. An image of the document from which the unique identifying number (above) was obtained.

FinCEN Identifier

Individuals and entities that are Beneficial Owners or Company Applicants will be able to obtain a unique FinCEN identification number (a “FinCEN Identifier”). However, the information provided to obtain the FinCEN Identifier is subject to the same updating requirements as regular reporting. Once obtained, the FinCEN Identifier may be provided by a Reporting Company on the report in lieu of the detailed information described above. If an individual or entity applies for a FinCEN Identifier, it is thereafter their responsibility (rather than the Reporting Company) to keep the information provided up to date, to keep the image of the identifying document current, and to correct any inaccuracies in the information provided. You can obtain a FinCEN Identifier by visiting: https://www.fincen.gov/boi

How To Report

FinCEN developed an online portal for reporting companies to file the report, which is now available (You can access that portal by visiting: https://boiefiling.fincen.gov). Currently, there is no associated fee with submitted the report.

Additional Notes

• This new filing requirement is completely unrelated to IRS income tax filing;

• At the present time there are NO extensions available;

• This may be a good time to consider dissolving entities that are not being utilized, so that they don’t inadvertently create a reporting problem;

• Because of the amount and nature of confidential information that must be provided, we strongly emphasize that you should NOT use unknown 3rd party solicitors, which we expect to soon emerge, because they could use this confidential information to steal your or your company’s identity or data.

Relevant Updates re Legal Status of Corporate Transparency Act (“CTA”)

On March 1, 2024, in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), a federal district court declared that the Corporate Transparency Act (“CTA”) is unconstitutional, concluding that the CTA exceeds the Constitution’s limits on Congress’s power. As a result of the federal ruling, FinCEN is prohibited from enforcing the CTA against the plaintiffs in the Yellen case, who were members of the National Small Business Association (NSBA) as of March 1, 2024. On March 11, 2024, the Department of Justice filed a Notice of Appeal, challenging the Yellen decision. Until a final ruling is made by the Court of Appeals or the Supreme Court of the United States, the fate of the CTA remains uncertain.

For now, FinCEN has indicated it will continue to implement the CTA as required by Congress with respect to non-NSBA members. FinCEN makes clear that other than the particular individuals and entities subject to the federal court’s injunction, reporting companies are still required to comply with the CTA and file beneficial ownership reports. Due to the narrow scope of the Yellen ruling, entities which were not members of the NSBA as of March 1, 2024, should continue to assume that the reporting requirements and deadlines of the CTA (outlined above) apply to them. Accordingly, a reporting company created before January 1, 2024, will have until January 1, 2025, to report, and a reporting company created or registered in 2024 will have 90 calendar days to file after formation. If you are unsure of whether the Yellen ruling applies to you, please contact our office.

Additional Resources

If you have questions about filing, you should consult:

• The Beneficial Ownership Information Report Filing Instructions at: https://boiefiling.fincen.gov/help;

• The Beneficial Ownership Information Reporting Frequently Asked Questions at:  https://www.fincen.gov/sites/default/files/shared/BOI_FAQs_Q&A_01.2024_FINAL.pdf

• The Small Entity Compliance Guide (BOI Reporting Requirements) at: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf

As a general matter, Fahlman Little Wheeler, PLLC, will not be taking on reporting requirements or preparing any filings related to the Corporate Transparency Act for clients or their respective businesses, unless otherwise agreed upon in writing. However, please do not hesitate to contact us if you need assistance accessing resources or have questions regarding the interpretation of particular reporting requirements. We will do our best to point you in the right direction.

This document is intended to provide you with general information regarding the subject. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact our office directly.