With the deadline approaching for small businesses to comply with the Corporate Transparency Act (CTA), the pressure is mounting to file Beneficial Ownership Information (BOI) reports. Initially set for January 1, 2025, the deadline has been extended to January 13, 2025, amid legal challenges to the legislation.
Enacted to promote transparency and tackle illicit activities such as money laundering and tax fraud, the CTA mandates all corporations, limited liability companies, and other qualifying entities to submit detailed reports to the Financial Crimes Enforcement Network (FinCEN). Approximately 32.6 million businesses across the United States fall under this requirement.
Under the CTA, any businesses formed after January 1, 2024, mustprovide extensive details about their beneficial owners—including names, addresses, birthdays, and identification numbers. Existing entities only need to disclose information about their beneficial owners and the company itself. A beneficial owner is defined as anyone who directly or indirectly owns or controls at least 25 percent of the business or has significant decision-making power within the company.
The urgency for compliance is amplified by significant penalties for non-filing: businesses could face up to two years of imprisonment, fines reaching $10,000, and daily civil penalties of up to $591.
The pathway to compliance has been challenged recently, following various court rulings. Just before Christmas, the Fifth Circuit Court of Appeals reversed a prior decision and lifted the injunction initially issued by the U.S. District Court for the Eastern District of Texas, which had barred enforcement of the CTA. This injunction was created on grounds of the Commerce Clause being exceeded. Following the Fifth Circuit's latest decisions, the enforcement of the BOI reporting is now back on, though with some temporary reprieve due to the legal back-and-forth.
Kamala C. from the Financial Crimes Enforcement Network pointed out, “When balancing this harm against the public’s urgent interest in combatting financial crime... equity favors a stay,” which highlights the tension between regulatory compliance processes and the severe penalties businesses may face for non-compliance.
Jeff Poeschel, accountant at Sundstrom and Company, encouraged compliance by stating, “The penalty for willful neglect is $500 per day, so it is something we're encouraging people to comply with.” He reassured businesses, indicating the information required is largely already held by the government and will be compiled more cohesively.
No matter the outcomes of these legal proceedings, the extension provides some relief to businesses, affording them space to align their records with CTA requirements. The CTA has been positioned as instrumental for transparency, with its aim being to shine light on corporate ownership structures believed to facilitate criminal activity and financial malfeasance.
Notably, the upcoming hearings concerning the constitutional challenge to the CTA will be taking place on March 25, 2025. Until then, all entities must stay vigilant. If ultimate rulings stereotype the CTA as constitutional, businesses currently caught in limbo may find themselves with looming compliance obligations yet again.
Despite the somewhat chaotic environment induced by the litigation surrounding the CTA, companies are urged to remain organized and proactive. Adapting to these compliance structures could prevent severe repercussions later. While the waters remain murky currently, clarity may soon arise as courts navigate the compelling arguments around this legislative act meant to combat financial crime.
FinCEN also noted its introduction of the BOI E-Filing system, which allows businesses to streamline their reporting process electronically. This effort aligns with broader goals of preventing misuse of the U.S. financial system.
Continuing to stay informed and prepare for compliance will be key for these small entities, ensuring their participation aligns with the imperative to maintain transparency and legal adherence—the core ambitions of the CTA. The road leading up to January 13, 2025, will demand agility from businesses, reminding all of the delicate balance between regulatory expectations and the operational realities faced by entrepreneurs.