Compliance with Corporate Transparency Act Reporting Requirements

We will continue to keep you updated through our website and will advise if there are any further developments.

UPDATE DECEMBER 30, 2024

On December 26, 2024, the U.S. Court of Appeals for the Fifth Circuit issued an order reinstating a nationwide injunction, temporarily preventing the federal government from enforcing the Corporate Transparency Act. As a result, companies are not required to submit beneficial ownership reports at this time. This pause will remain in effect until the Fifth Circuit reviews the injunction and evaluates the underlying merits of the ongoing legal challenge.

UPDATE DECEMBER 24, 2024

Today, the Fifth Circuit Court of Appeals issued a stay of the preliminary injunction in the Texas Top Cop Shop case. This decision means that the January 1, 2025 filing deadline for Beneficial Ownership Information (BOI) reports is reinstated. If you require assistance from Ashby Law Offices with the CTA compliance then please notify this office by email at [email protected] or by phone message before 10:00 am Monday, December 30^th.

UPDATE DECEMBER 13, 2024

The Department of Justice filed an emergency motion with the US Court of Appeals for the 5^th Circuit asking for a ruling by December 27, 2024. The Appeals Court has accelerated the briefing schedule and responses are due December 19, 2024. It is believed that the Appeals Court will issue a ruling to allow the stay to be lifted before January 1, 2025. This may only provide four (4) days for business owners to comply with the filing requirements.

***If you wish for our office to assist you with compliance with the Corporate Transparency Act Reporting Requirements in the event that the stay of the preliminary injunction is granted, it is imperative that you contact our office to notify us of same by 12:00 p.m. on December 23, 2024.

UPDATE DECEMBER 9, 2024

**The Department of Justice filed a Notice of Appeal on December 5, 2024 and the preliminary injunction remains in effect.

UPDATE DECEMBER 4, 2024

The U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction prohibiting enforcement of the CTA, however the injunction is temporary and is appealable.

The Corporate Transparency Act (CTA), enacted in 2021, mandates certain entities to report beneficial ownership information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This information is aimed at combating financial crimes, such as money laundering and tax evasion.

**The reporting requirements of CTA are scheduled to take effect on January 1, 2024. Entities created or registered before this date have a filing deadline of January 1, 2025. Entities created after January 1, 2025 must register within thirty (30) days of formation. Entities subject to the CTA include corporations, limited liability companies, and similar entities, with certain exemptions.

Legal challenges to the CTA have been filed, asserting concerns about privacy and the burdens imposed on small businesses. These challenges are under appeal in federal courts. While the outcomes of these appeals could potentially alter the implementation or enforcement of the reporting requirements, FinCEN has indicated that compliance deadlines remain unchanged unless directed otherwise by a court ruling or legislative action.

Who Will be Required to File:

Both domestic and foreign reporting companies are required to file reports. A company is considered a reporting company if a document was filed with their secretary of state (SOS) or similar office to create or register the entity.

Corporations (including S corporations), LLCs, and other entities formed through the SOS are subject to the reporting requirements. However, because sole proprietorships, trusts, and general partnerships do not require the filing of a formal document with the SOS, they generally are not considered a reporting company and will not have a filing requirement. Foreign companies are required to file reports if they are registered with the SOS or similar office under state law. The Corporate Transparency Act (CTA) exempts certain entities from its reporting requirements. These exemptions are primarily for organizations already subject to substantial federal or state oversight. Excluded entities are:

1. Large Operating Companies - A company that employs more than 20 full- time employees in the United States, has an operating presence at a physical office within the U.S., and has filed a U.S. federal income tax return showing more than $5 million in gross receipts or sales (excluding gross receipts or sales from foreign sources).
2. Governmental Entities - Federal, state, and local government entities, and political subdivisions or agencies of such entities.
3. Publicly Traded Companies - Any company that is an issuer of securities registered under Section 12 of the Securities Exchange Act of 1934, or is required to file reports under Section 15(d) of the Act.
4. Regulated Financial Institutions - Entities already subject to extensive regulation, such as: banks, credit unions, and bank holding companies.; securities broker-dealers; registered investment advisers and investment companies; and insurance companies regulated by a state.
5. Tax-Exempt Entities - Organizations exempt from federal income tax under Internal Revenue Code Section 501(c), such as: nonprofit organizations, charities, and religious organizations; and churches and affiliated auxiliaries.
6. Subsidiaries of certain exempt entities.
7. Inactive entities that were in existence before January 1, 2020.

Information Required in a Reporting

Beneficial ownership information (BOI) must be reported for the company's beneficial owners and (for entities formed or registered after 2023) company applicants. BOI includes an individual's full legal name, date of birth, street address and a unique ID number. The unique ID number can be from a non- expired US passport, state driver's license, or other government-issued ID card. An image of the document showing the unique ID number must also be included with the report.

Beneficial Owners: Two groups of individuals are considered beneficial owners of a reporting company: Any individual who directly or indirectly owns or controls at least 25% of the ownership interests of the reporting company; or any individual who exercises substantial control over the reporting company. Individuals with substantial control are those with substantial influence over important decisions about a reporting company's business, finances, and structure. Senior officers (president, CFO, general counsel, CEO, COO, and any other officer who performs a similar function) are automatically deemed to have substantial control, as are individuals with the authority to appoint or remove senior officers and board members. There is no requirement that these individuals have actual ownership in the company to be considered a beneficial owner for reporting purposes.

Company Applicants: The company applicant is the person who actually files the document that creates or registers the reporting company (e.g., an attorney). Company applicants must provide the same information that is required of beneficial owners, but only if the reporting company is formed or registered after 2023. Because of the difficulty in tracking down information about company applicants for reporting companies that have been in existence for a number of years, reporting companies formed or registered before 2024 do not have to supply BOI for their company applicants.

**Important Filing Dates:

For existing reporting companies created or registered before 2024, the initial report is due by January 1, 2025. For reporting companies created or registered in 2024, the initial report is due 90 days after the entity's creation or registration. For reporting companies created or registered after 2024, the initial report is due 30 days after the entity's creation or registration. See above for recent success of legal challenges that may alter these deadlines.

If there is a change to previously reported information about the reporting company or its beneficial owners, an updated report must be filed within 30 days of the change. It is imperative that your company implements a system to identify reportable changes and file an updated report with FinCEN in a timely manner. The penalties for willfully failing to file both initial and updated reports are steep - $500 per day that the report is late, up to $10,000 and imprisonment for up to two years.

How to File:

Filing is done through the Financial Crimes Enforcement Network (FinCEN) via its Beneficial Ownership Secure System (BOSS) portal. You will need to register for access to the FinCEN filing portal, login and provide all of the required information as stated above and verify accuracy. Once all the fields are complete, the report can be submitted electronically.

It will be each Beneficial Owner's responsibility to provide the following required information: Full legal name; date of birth; street address, city, state, zip code; and image of front and back of their driver's license, non-expired US passport, or other government-issued ID card.