A female Small Business Owner is stressed after having yet another burdensome reporting requirement coming in 2024 under the Corporate Transparency Act
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Breaking News Update: February 18: A District Court in Texas stayed their nationwide injunction regarding the enforcement of the Corporate Transparency Act and the associated reporting requirement discussed herein. More details below.

Beginning on January 1, 2024, small businesses will be required to file information on owners under the Corporate Transparency Act. Businesses will also be required to submit updated reports when certain underlying information changes. This is all part of Congress’s efforts to combat money laundering activity and other illegal financial crimes.

Why Was the Corporate Transparency Act passed?

So remember back a few years when the Panama Papers were leaked? (Dang, are we really approaching almost a decade since that happened?)

When the Panama Papers and a series of related and similar leaks from law firms, banks, and other entities happened, it really showcased how the really rich and how the less um, law abiding, individuals moved money throughout the world.

But what didn’t get as much attention at the time is the role that many of the U.S. states play as tax havens and centers of secrecy. In fact, two popular states for such entities are Delaware and Wyoming – both because of their favorable tax treatment and because of how the ownership structures can be kept secret.

In fact, in most states, the Secretary of State does not ask “WHO OWNS THIS COMPANY?” that they created. You just need a registered agent to accept legal filings. And that doesn’t have to be an owner – you can hire a local company to do that for you.

It’s so bad that the Tax Justice Network ranked the United States as the #1 most secretive country in the world in their 2022 index. Yep! We beat out noted secrecy hub Switzerland in how we help individuals hide the financial transactions. According to the Tax Justice Network, this financial secrecy “facilitates tax abuse, enables money laundering and undermines the human rights of all.”

Why Business Secrecy is Bad and Transparency is Good

The biggest arguments on Corporate Transparency have to deal with stopping illegal activity – from hiding income so that they don’t have to pay income taxes to money laundering from crimes such as drugs, arms, and human trafficking.

Think about all those crime shows you’ve watched, as cops are investigating and they run into the roadblock because the phone is registered to a “shell company” that doesn’t do any real business, have any real business to go visit, or have any employees to question. What if the cops could then turn to the federal government and say tell me who the owners are? How does that story change?

Why Business Secrecy is Good and Transparency is Bad

While the intentions of the Corporate Transparency Act are good, there are some downsides to increasing corporate transparency. One of the big criticisms comes from domestic abuse survivors – if they have to report their company ownership information to some government entity, will that information then become available to their abusers?

What if you win the lottery or receive a large inheritance? Does that information become available for others to figure out who you are (even in states where lottery winnings can be claimed anonymously)?

To combat some of those criticisms, the United States Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is required to keep the information reported in a secure database that is not available to the public. The information in that database will, supposedly, only be available upon request by (1) federal law enforcement agency, (2) state, local, or tribal law enforcement agency if authorized by a court order, (3) a federal agency of a foreign country, if requested pursuant to an international agreement, or (4) financial institutions to complete due diligence requirements under “Know Your Customer” rules.

Do You Need an LLC? Find Out in This Course

Who Needs to File?

Have you created an LLC, LLP, or other entity with your state’s Secretary of State (or similar office that is responsible for legal entity creation)? Have you registered an entity organized in a foreign country to do business in any U.S. state?

Then, the likelihood is that you will need to file a report.

However, there are some exceptions to the reporting requirement – 23 in total. If you are in a regulated industry where you already have to report beneficial ownership – say you are a investment adviser – then you don’t have to file. Nor if you are a publicly traded company, certain investment vehicles, nonprofits or government entities. Accounting firms, registered in accordance with Section 102 of the Sarbanes-Oxley Act, are also exempt.

If you have more than 20 employees AND you have more than $5 million in gross receipts or sales, as reported on the prior year’s tax return, and have an operating presence (you know, a storefront, factory, office, etc), then you don’t have to report either.

It all sounds complicated – and it is. But ultimately, remember the idea is to collect information on owners of small businesses that otherwise fly under the radar and enable tax fraud and money laundering.

What is in the BOI Report?

There will be two general sections of information required – information on the company and information on the beneficial owners and company applicants.

The company information will include the full legal name, DBAs, current address, and EIN or taxpayer identification numbers.

The beneficial ownership information will include the full legal name, date of birth, current address, and an image of either a U.S. passport, state driver’s license, or other identification document issued by a state or local government or tribe. If none of these are applicable, then a foreign passport will also be accepted.

When Do You Need to File?

All new entities created in 2024 (and after) will have thirty (30) days to file their report of Beneficial Ownership Information (BOI). If your LLC or other entity was created prior to January 1, 2024, you’ll have all year to complete your initial BOI. [Note: there’s a special exception for filing new entities created in 2024. You have 90 days this year only. After that it is 30 days.]

If you have to update or correct any information on a BOI, you must submit that within 30 days of the underlying change.

Yes, this means if you get a new drivers license, you have to update the BOI within 30 days. New address? Update the report. New drivers license because the old one expired? Update the report. Restrictions added or lifted from the face of your license? Update the report.

But it also means that if an owner turns 18, then you update the report. If an owner moves addresses or dies, update the report. If an officer is added or removed from the company, got to update the report. Or the business moves, yep, that’s another update.

Literally, if any one field on the report changes for any reason – including the ID documents – then you have 30 days to file an update. Are we having fun yet?

All reports will be filed electronically through FinCEN (sorry, no paper filings permitted).

Note: Because of the litigation surrounding this law and the reporting requirement, the deadlines are delayed. Check with FinCEN.gov for the most recent and up-to-date filing deadlines. Don’t want to keep up with the litigation? You can file on a voluntary basis at any time.

What is “Beneficial Ownership”?

A beneficial owner is generally an individual who owns or controls at least 25% of a company or has substantial control over the company.

Every company should have at least one beneficial owner, but there is no limit to the total number of beneficial owners of a company. No, 4 is not the limit (four owners each with 25% ownership interest). Because of the definition of substantial control.

Substantial control includes senior officers (CEO, CFO, GC, COO, etc), any individual with the ability to appoint or remove such senior officers and/or a majority of the board of directors, any individual that is classified as an important decision maker, or any individual that has any other form of substantial control over a company.

Even within this there are exceptions. For example, the company does not have to report information on a minor child. Instead, the company may report information about the parent or legal guardian of the child. But then the child’s beneficial ownership must be reported within 30 days of reaching the age of majority.

What is a “Company Applicant”?

A company applicant is generally an individual who directly files or is primarily responsible of the filing of the document that creates or registers the company. Companies have to report the “company applicant” only if first created or registered to do business after January 1, 2024. This means all currently existing (as of 2023) entities do not have to file the BOI reports on the Company Applicant.

These individuals will be the people that actually submit the documents to the Secretary of State. If a company uses someone like a lawyer, accountant, or other service, then the individual that directs that person to file will be reported.

How Do I File a Beneficial Ownership Information Report?

What You Need Prior to Filing

Before you sit down to file you report, gather all this information in one place. Once you have this, that’s the hard part. Filling out the form won’t take you that long.

  • Full Legal Name
  • Any DBAs (Doing Business As or alternative names)
  • Address
  • EIN
  • For Each Beneficial Owner:
    • Name and Address
    • Date of Birth
    • Picture of Drivers License or Passport (or other suitable ID) on your computer

Electronic Filing

Like I mentioned above, the report must be filed electronically. There is no paper filing.

You file the report on the FinCEN website. Follow the prompts to the Beneficial Ownership Information (BOI) Reporting (not to be confused with the Bank Secrecy Act (BSA) Reporting!)

Most people that are doing the BOIR on their own will choose to File Online BOIR and not the PDF BOIR. This way you are completing a form, and they will check to make sure that you are filling in all the required fields.

If you have a lot of entities that you are filing for, you may want to acquire a FinCEN ID. This will let you update your personal information and it will populate to the other entities that you are linked to.

Company Applicant: If you are filing this on your own behalf for an existing entity, you will not need to worry about the Company Applicant section. However, if you are filing on behalf of others – like a CPA or law firm or as an incorporator for a new entity, you’ll fill this section out.

Form of identification: Hint, have the picture in a JPEG format. I’ve seen and heard from others that other picture types are sometimes not accepted or are difficult for the form to handle. Make it easier on yourself by having the pictures in JPEG from the beginning.

Captcha: Just going to warn you that the most difficult part of the entire form may well be the captcha box. It has been really annoying for me. Yes, you can eventually get through but the difficulty level is dialed up to 11.

Download the Transcript

Once you have completed the form and hit submit, you’ll get a FILING SUCCESSFUL screen.

Before you click off this page, make sure that you download the transcript and keep this in your permanent files.

Successful submission of the Beneficial Ownership Information Report. Don't forget to download the transcript before leaving this page
Successful submission of the Beneficial Ownership Information Report. Don’t forget to download the transcript before leaving this page

And now you are done with your BOI Report. Don’t forget to come back to update if there are any changes to the information you submitted. This includes change of beneficial owners or their addresses or IDs.

What are the penalties if I don’t file the proper reports under the CTA?

There are some significant penalties attached to the willful failure to report under the CTA. These could be in the form of civil or criminal penalties. The maximum civil penalty is up to $500 for each day that a violation continues. The criminal penalties could be imprisonment for up to two years and/or a fine of up to $10,000.

Who is responsible for the failure to file penalties?

FinCEN reports that senior officers of companies that don’t file could be held accountable under the civil and criminal penalties. Also, if an owner refuses to give accurate information to the company to report the beneficial ownership information then that owner could be held responsible for failing to file accurate BOI reports.

I’m Confused! Who Will Help Me?

Don’t worry. Even the professionals are confused by this. Or maybe that should make you worry even more.

At present, you’ll probably want to start figuring out if your entity is required to report. You can talk with your lawyer or your CPA – the most likely professional advisers that you are going to seek help from for compliance with the CTA.

Remember, while the reports are required in 2024 – you won’t have to file your first report for an existing business until the end of the year. So you’ll have some time to figure out what’s what.

Honestly, I expect January and February 2024 to be crazy. So unless you have to file because you start a new entity in early 2024, you’ll want to wait until the dust settles and some of the confusion settles with it. Or maybe new questions that we haven’t even considered yet to appear.

In any case, by mid-2024, I’d expect that we will all be in a better position to know how to handle the most common of scenarios.

In the meantime, feel free to contact Springboard Legal for assistance in determining whether you need to file and the reporting process.

Scam Warning!!!

Because with every new law there is a criminal waiting to take advantage of unsuspecting business owners, there are already scams out and about relating to this new filing requirement under the Corporate Transparency Act.

Fraudulent correspondence is being sent to business owners asking them to go to a website and enter the appropriate information that would be required under the law. They may also be asking for payment, which isn’t required as you can file on your own (although you may very well want to hire a lawyer or CPA to do this for you).

In any case, I caution you about responding to any unsolicited emails or physical mail regarding the Corporate Transparency Act. Remember, FinCEN will not be accepting any reports until January 1, 2024.

See Also: Beware of Scams Pretending to be the Government

Wasn’t the CTA ruled unconstitutional?

On March 1, 2024, Judge Liles C. Burke of the Northern District of Alabama granted summary judgment in favor of the plaintiffs, the National Small Business Association and an individual Isaac Winkles.

In granting the motion for summary judgment, Burke determined that the Corporate Transparency Act is unconstitutional in that the law exceeded the government’s legislative powers.

However, and this is an important point, the judge issued a permanent injunction ONLY FOR THE PLAINTIFFS IN THIS CASE and did not issue a nationwide injunction. And the Justice Department filed an appeal on March 11, 2024.

This means that you (most likely) still have to comply with the reporting requirements of the Corporate Transparency Act, pending further developments. That means that new entities need to file within 90 days of creation and existing prior to January 1, 2024 entities need to file by the end of the year. Unless, of course, an exemption to the filing requirement applies to your entity.

Here Comes in the 5th Circuit

Is anyone surprised that a District Court in the 5th Circuit ruled a law likely unconstitutional? Anyways… here goes…

Basically, the plaintiffs in Top Cop Shop argued a bunch of stuff that basically Congress didn’t have the authority to pass a law requiring disclosure of the information required in the Beneficial Ownership Information (BOI) Report.

And despite the fact that at least one of the plaintiffs, a licensed firearms dealer, would have already disclosed this information to a federal agency, they said it was an invasion of privacy to disclose that private information under the First and Fourth Amendments.

When it comes to the Commerce Clause, the judge said that the CTA does not regulate companies that use channels or instrumentalities in interstate commerce. Further, the CTA doesn’t regulate an activity in interstate commerce (like say hotel accommodations), instead creating an activity.

Interestingly, the judge says at one point that the historical precedence – that Congress has never done this before – is a sign that Congress is exceeding its constitutional powers. Using that logic, no new laws can ever be passed again? Guess we don’t need to pay all those Congressional salaries then.

Also interesting was the judge’s analysis that the federal government could control the marijuana market under the Controlled Substances Act as that would affect price and market conditions, even though the market was illegal. Meanwhile, here, Congress cannot regulate the illegal money laundering activity by requiring disclosure and of course, here, that doesn’t impact interstate commerce.

And another interesting argument was that the CTA was not a necessary and proper part of the tax laws because it, in and of itself, did not raise revenue. So if they put a $5 fee per report with this law, it would then be constitutional under the Necessary and Proper Clause? But knowing who owns companies so that they can properly enforce existing tax laws isn’t enough? Using that logic, would the requirement that taxpayers report foreign bank accounts be unconstitutional?

So, despite all those interesting arguments that are eyebrow raising, the court decided that a nationwide preliminary injunction was appropriate as the law is likely unconstitutional. As of now, the reporting requirement is off.

The Supreme Court Chimes In

On January 23, 2025, the U.S. Supreme Court stayed the nationwide injunction in Top Cop Shop. This would put the BOI back on, except for the fact…

A Second BOI Nationwide Injunction

While the Top Cop Shop case was making its way through the courts, a second case was filed in the Eastern District of Texas. The District Court in that case also issued a nationwide injunction. But the Supreme Court didn’t stay the injunction in that case when it stayed the injunction in Top Cop Shop.

So even though the Supreme Court issued a stay, FinCEN still couldn’t enforce the CTA.

That is until February 17, when the District Court issued a stay of the nationwide injunction, in light of the Supreme Court’s stay in the other case.

So all signs right now point to the fact that you must file a BOI Report.

Attempts to Repeal the Corporate Transparency Act

On April 29, 2024, Representative Warren Davidson (Republican) introduced a bill to repeal the Corporate Transparency Act. There are 16 additional co-sponsors of the bill, all of the Republican party. It was then referred to the House Committee on Financial Services. Don’t get excited though. HR 8147 didn’t get any traction.

HR 736 is getting some traction in 2025, however. That bill, while not repealing the CTA, does delay the effective date 2 years. So it would apply as of January 1, 2026, instead of January 1, 2024. This bill unanimously passed the House on February 10, 2025, and is now with the Senate.

Springboard Legal will continue to monitor this bill as well as any litigation on the Corporate Transparency Act to determine whether the law continues to be applicable to small and growing businesses.

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