The Fifth Circuit Court of Appeals has reinstated the enforcement of beneficial ownership reporting under the Corporate Transparency Act (CTA), marking a significant development for businesses across the United States.
This ruling, executed on December 23, 2024, reversed the previous injunction from the Eastern District of Texas, which had temporarily halted these reporting requirements. The new deadlines now require companies to submit their beneficial ownership information to the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) by January 13, 2025, avoiding potential penalties of hefty fines or imprisonment.
According to the Fifth Circuit, the CTA is likely constitutional, remarking, “because the CTA operates constitutionally when it requires corporations... disclose their beneficial owner...” The unanimous decision emphasized the necessity of improving transparency in business ownership, particularly to combat illicit activities such as money laundering and fraud.
The reinstatement of the reporting requirement impacts various entities nationwide, including corporations and limited liability companies (LLCs). Over 230,000 farms are expected to comply, yet statistics reveal troubling figures; by October 2024, less than 11% of eligible businesses had filed their reports.
“It’s clear than many farmers aren’t aware of the filing requirement because of lack of guidance and the government’s poor public outreach,” voiced Zippy Duvall, President of the American Farm Bureau Federation. This sentiment reflects broader concerns among businesses about their awareness of compliance obligations.
For reporting companies established before January 1, 2024, the new deadline is January 13, 2025. Companies created or registered on or after September 4, 2024, will have deadlines ranging from December 3, 2024, to January 13, 2025, depending on their registration date. New companies formed on or after January 1, 2025, are allowed 30 days to file after receiving notice of their establishment.
The potential consequences for failing to comply are severe. Companies not meeting the filing requirements risk penalties up to $10,000 for willful violations, as well as civil fines of $591 per day until compliance is achieved. The stakes grow higher with possible felony charges and prison time depending on the severity of the infraction.
The broader environment around the Corporate Transparency Act remains tumultuous. While the Fifth Circuit upheld the law, other legal challenges continue to circulate through various courts, with several plaintiffs contesting the law’s constitutional standing. It remains uncertain how potential outcomes from these cases may affect enforcement and reporting going forward.
Compounding the situation, numerous states also offer their own versions of beneficial ownership reporting laws. For example, New York has enacted the LLC Transparency Act, aiming to provide local authorities with access to beneficial ownership information, separate from federal guidelines. This act will take effect on January 1, 2026, reflecting the growing trend toward increased regulatory scrutiny on business ownership.
FinCEN has launched extensive public outreach efforts to clarify the reporting requirements and is prepared to assist businesses through the filing process. They assert, “The Department of the Treasury recognizes... reporting companies may need additional time to comply,” adding reassurance for those grappling with the new rules.
The necessity for compliance is increasingly apparent. With awareness levels low among small business owners and farmers, experts encourage companies to consult with accountants or attorneys to determine their obligations under the CTA.
Overall, the reinstatement of reporting requirements under the Corporate Transparency Act signals significant changes for business transparency and accountability, pushing many entities to catch up swiftly with compliance measures.
With deadlines looming and legal controversies swirling, the attention surrounding these developments will undoubtedly continue to grow as both businesses and legal parties navigate this complex regulatory terrain.
