What You Need to Know
The Financial Crimes Enforcement Network (FinCEN) has extended the deadline for most reporting companies to file beneficial ownership information (BOI) reports to January 13, 2025. This extension follows a recent court ruling that reinstated the reporting requirement.
Background
The Corporate Transparency Act (CTA) was enacted in 2021 as part of a broader effort to combat money laundering, terrorism financing, and other illicit activities. The CTA requires certain businesses to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of the Treasury. This information includes details about individuals who own or control at least 25% of a company, such as their names, addresses, and identification numbers.
The primary goal of the CTA is to increase transparency and prevent the misuse of shell companies for illegal purposes. By mandating the disclosure of beneficial ownership, the CTA aims to make it more difficult for criminals to hide their identities and launder money through anonymous corporate structures.
Legal Developments
On December 3, 2024, the enforcement of the CTA faced a significant legal challenge. In the case of Texas Top Cop Shop, Inc. v. Garland, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, halting the enforcement of the CTA and its BOI reporting requirements. The court’s decision was based on arguments that the CTA and its implementing regulations were unconstitutional and exceeded Congress’s authority.
The Department of Justice (DOJ) quickly appealed the decision, seeking to lift the injunction and reinstate the reporting requirements. On December 23, 2024, the Fifth Circuit Court of Appeals granted the DOJ’s emergency motion for a stay, effectively lifting the injunction and allowing the CTA’s enforcement to proceed. The court’s order emphasized the government’s strong likelihood of success in defending the constitutionality of the CTA and highlighted the public’s urgent interest in combating financial crime and protecting national security.
Impact on Reporting Companies
Following the Fifth Circuit’s decision, FinCEN announced an extension of the BOI reporting deadlines to accommodate the period during which the injunction was in effect. The new deadlines are designed to provide reporting companies with additional time to comply with the CTA’s requirements:
- Companies created or registered before January 1, 2024: Must file initial BOI reports by January 13, 2025.
- Companies created or registered between September 4, 2024, and December 23, 2024: Have until January 13, 2025, to file initial BOI reports.
- Companies created or registered between December 3, 2024, and December 23, 2024: Have an additional 21 days from their original filing deadline.
- Companies qualifying for disaster relief: May have extended deadlines beyond January 13, 2025.
- Companies created or registered on or after January 1, 2025: Have 30 days to file initial BOI reports after receiving notice of their creation or registration.
Industry Response
The American Institute of CPAs (AICPA) and state CPA societies have been vocal in their concerns about the tight reporting deadlines. They have written numerous letters to Congress and FinCEN, urging a delay in the reporting deadline to allow businesses more time to prepare. Although a proposed spending bill included a one-year delay for BOI reporting requirements, the final version passed by Congress did not contain any provisions for extending the deadline.
What Companies Should Do Now
With the new January 13, 2025, deadline approaching, companies must take immediate action to ensure compliance with the Corporate Transparency Act (CTA). Here are the key steps to follow:
- Understand the New Deadlines: Familiarize yourself with the specific deadlines set by FinCEN. Companies created or registered before January 1, 2024, must file their initial BOI reports by January 13, 2025. Other deadlines apply to companies created or registered between September 4, 2024, and December 23, 2024, and those created or registered on or after January 1, 2025.
- Gather Beneficial Ownership Information: Collect the necessary information about your company’s beneficial owners, including names, addresses, and identification numbers. Ensure that this information is accurate and up-to-date.
- Update Internal Processes: Implement or update internal systems to manage and maintain beneficial ownership information. This includes setting up procedures for ongoing compliance and regular updates.
- Consult Legal and Compliance Experts: Seek advice from professionals to ensure your company fully understands and complies with the CTA requirements. Legal and compliance experts can provide guidance on the specifics of the law and help navigate any complexities.
- Prepare for Filing: Start compiling the required documentation for filing your BOI reports with FinCEN. Make sure all information is complete and verified to avoid any issues during the filing process.
- Monitor for Updates: Stay informed about any further legal developments or changes to the reporting requirements. Regularly check FinCEN’s website and other reliable sources for the latest information.
By focusing on these steps, companies can ensure they meet the new BOI reporting deadlines and remain compliant with the CTA. Preparing now will help avoid last-minute issues and potential penalties.
Conclusion
Companies affected by these changes should take note of the new deadlines and ensure compliance to avoid penalties. The Fifth Circuit Court of Appeals’ decision to lift the injunction and reinstate the BOI reporting requirements is not the final ruling on the constitutionality of the CTA. Further hearings are expected, and other related cases are pending in different courts. It’s crucial for companies to stay informed about these legal developments and be prepared to comply with the current deadlines.
