Deadlines for Compliance with the Corporate Transparency Act in Flux
The Corporate Transparency Act (CTA) was enacted in 2021 and requires certain privately held companies to report information about their beneficial owners, referred to as “Beneficial Ownership Information” or BOI, to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). While the CTA went into effect on January 1, 2024, since its passage the Act has been subject to various legal challenges that enjoined the BOI reporting requirement.
Recently, on February 17, 2025, a federal court in the Eastern District of Texas entered an order staying the last remaining nationwide injunction of the CTA’s BOI reporting rule in the case of Smith, et al. v. U.S. Department of the Treasury, et al., 6:24-cv-00336 (E.D. Tex.). In response, on February 18, 2025, FinCEN extended the deadline for reporting companies to file a BOI report to March 21, 2025. However, a week later, on February 27, 2025, FinCEN issued a notice stating that it will not issue any fines or penalties or take any other enforcement actions against any companies based on failing to file or update BOI reports pursuant to the CTA by the current deadlines. FinCEN announced that no fines or penalties will be issued, and no enforcement actions will be taken, until a forthcoming interim final rule becomes effective and the new relevant due dates in the interim rule have passed. No later than March 21, 2025, FinCEN intends to issue an interim final rule that extends BOI reporting deadlines.
Going further, on March 2, 2025, the Treasury Department announced that it will not enforce any penalties or fines against U.S. citizens or domestic reporting companies or their beneficial owners after the forthcoming rule changes take effect either. In addition, the Treasury Department stated its intent to issue a proposed rulemaking that will narrow the scope of the rule to foreign reporting companies only.
There is also currently a separate legislative effort to extend CTA filing deadlines until January 1, 2026 for reporting companies formed prior to January 1, 2024, which is making its way through Congress. In addition, there are several constitutional challenges to the CTA that continue to work their way through the courts.
Suffice it to say, the status of the CTA and its deadlines remain quite fluid, and we can expect more developments on this front.
For those not already familiar with the CTA, here is a refresher of the law as it currently stands, who is required to file a BOI report under the current law, and what information it requires to be reported to FinCEN. The CTA is a federal law that aims to increase transparency in corporate ownership in an effort to combat the use of business entities for money laundering and financing of terrorism. The CTA requires a “reporting company” to submit to FinCEN a report that contains identifying information about the “beneficial owners” of the reporting company.
Who is a reporting company? Under the current law, the term “reporting company” is broadly defined, and includes any corporation, limited liability company (LLC) or other similar entity that is created by filing with a state agency or formed under the law of a foreign country and registered to do business in the U.S. by filing with a state agency. This does not apply to only newly formed companies, it includes all existing companies as well. Of course, there are a number of exceptions with the CTA excluding from its reporting requirements certain entities to include banks, credit unions, investment companies, state-licensed insurance producers, insurance companies, accounting firms, public utilities, entities registered with the SEC, publicly traded companies, large operating companies, and inactive entities, among others. A large operating company under the CTA is an entity with more than 20 full-time U.S. employees, more than $5 million in gross receipts or sales in the preceding tax reporting year, and an operating presence at a physical office within the United States. The bottom line is that unlike other federal laws and regulations that may exempt smaller entities, under the CTA, most small businesses, including single-member LLCs and sole proprietorships, are covered.
What information is required to be reported to FinCEN? The BOI report must identify each “beneficial owner” of the reporting company, along with that owner’s full legal name, date of birth, current residential street address, identifying number from a non-expired government issued photo ID and state of issuance, and a copy of the government-issued photo ID for which the number was provided.
The term “beneficial owner” under the CTA generally means any individual who, directly or indirectly, (a) exercises substantial control over the reporting company, or (b) owns or controls at least 25 percent of the ownership interests of the reporting company. An individual might be a beneficial owner through substantial control, ownership interests, or both, and a reporting company can have multiple beneficial owners. There is no requirement to report the reason that an individual is a beneficial owner. Since the definition of “beneficial owner” includes individuals who exercise substantial control over the company, a person can be a beneficial owner even if they do not have any ownership or equity interest in the reporting company. This can include senior officers, individuals with the authority to appoint or remove senior officers or a majority of the board of directors, or an individual who directs, determines, or has substantial influence over important decisions regarding the reporting company’s business, finances, or structure. While the ownership interests element may appear to be more straightforward on its face, note that this can take the form of equity, stock, or voting rights; capital or profit interest; convertible instruments (e.g., a warrant or right to purchase/sell/subscribe to a share or interest in any of the foregoing); options and other non-binding privileges to buy or sell any of the foregoing; and any other instrument, contract, or other mechanism used to establish ownership. A reporting company may have multiple types of ownership interests.
The CTA also requires updated reporting whenever there is any change to the reported information about the reporting company or its beneficial owners. The implementing regulations require the reporting company to file an updated BOI report within 30 days after the date on which the change occurred. Examples of changes that would require an updated BOI report include registering a new DBA name, a change in beneficial owners, such as a new CEO, a sale that changes who meets the ownership interest threshold of 25 percent, or the death of a beneficial owner.
There are criminal and civil penalties for willfully failing to report complete or updated beneficial ownership information to FinCEN. Civil penalties are currently a fine of up to $500 per day that the violation continues, and criminal penalties may include prison for up to two years and/or a fine of up to $10,000. Senior officers of an entity that fails to file a required BOI report may be held accountable for that failure.
The foregoing is only a brief summary of the CTA and does not cover all aspects and nuances of the current law. As mentioned above, the CTA and its implementing regulations are in a state of flux so stay tuned for more developments.
This article is for general information only and is not intended as and does not constitute legal advice or solicitation of a prospective client. It should not be relied on for legal advice in any particular factual circumstance.
