The Federal Corporate Transparency Act Deadline is December 31, 2024

December 5, 2024 by Matt Froelich

On January 1, 2024, the Federal Corporate Transparency Act (CTA) went into effect and U.S. Department of the Treasury Financial Crimes Enforcement Network (FinCEN) began accepting reports. As a reminder, the date to file a report is rapidly approaching. Most Entities created prior to January 1, 2024, will be required to file a report before December 31, 2024.

What You Need to Know About the Federal Corporate Transparency Act

The CTA was enacted by Congress as a component of the Anti-Money Laundering Act of 2020. Under the CTA, millions of small businesses are required to file reports with the federal government containing personally identifiable information for beneficial owners and company applicants. Companies that fail to do this will face large fines and may face criminal penalties, including prison time. Compliance is mandatory and reports must be filed with the FinCEN by the end of the year.

The primary goal of the CTA is to establish uniform reporting requirements for businesses. There are two components to the new reporting requirements. The first is information on the business entity, or the “reporting company.” The second is the information on the reporting company owners, or the “beneficial owners.” A report with this information must be filed via a FinCEN database starting in 2024. The information in the report will only be available to law enforcement and not the general public.

Not Every Business Needs to Report

The CTA primarily affects small businesses and not large companies or certain other exempt entities. Entities meeting all three requirements must report:

• Entities that are formed in the United States or registered to do business in the United States
• Entities that are a corporation, LLC, limited partnership, or other entity that is created by filing a document with the Secretary of State or other governmental entity
• Entities that have 20 or less full-time employees and $5 million or less in annual revenue for the prior year

Businesses regulated by either a state or federal agency are exempt from reporting. This includes:

• Financial institutions
• Publicly traded companies and other entities that report under the Securities and Exchange Act
• Insurance Companies or state-licensed insurance producer
• Accounting firms
• Tax exempt entities with 501(c)3, 501(c)4, or 501(c)6 IRS tax-exempt status
• Domestic governmental authorities
• Certain securities brokerage firms

What to Report

Reporting companies must file information on both the company and certain Beneficial Owners.

When filing the report, the company report must include:

1. Full legal name of the entity
2. List of any trade names or DBAs
3. The current address of the principal place of business or, if a foreign entity, the address of the primary location where the reporting company does business
4. The state, tribal, or foreign jurisdiction of formation, and, if foreign, the state or tribal jurisdiction where the reporting company first registered in the US
5. The IRS taxpayer identification number (TIN) of the reporting company, or, if a foreign entity does not have a TIN, a tax identification number issued by the foreign jurisdiction and the name of the jurisdiction.

In addition to information regarding the reporting entity, the company must also disclose the beneficial ownership report on every beneficial owner of the company. A beneficial owner includes the following:

1. A person that owns 25% or more of the entity
2. The entity’s senior officer (president, manager, general counsel, CEO, CFO, COO, or any other officer who performs a similar function)
3. Individuals that have authority to appoint or remove officers, directors, or managers
4. Any individual that is considered an important decision maker or has consent or veto rights over certain decisions of the entity.

The beneficial ownership report must include the following:

1. Full legal name
2. Date of birth
3. Current and complete residential street address
4. A unique identifier number and the issuing jurisdiction from one of the following documents
   1. Non-expired US Passport
   1. Non-expired state, local government, or tribal identification card
   1. Non-expired state driver’s license
   1. Non-expired passport issued by a foreign government, only if the individual has none of the other permissible documents.
5. Image of the document showing the unique identifier number.

If an individual provides the foregoing information to FinCEN directly, the individual may obtain a “FinCEN Identifier,” which can then be provided to FinCEN in a beneficial ownership report in lieu of the required information about the individual.

While all companies must file the reporting company and beneficial ownership reports regardless of when formed, there is an additional requirement for entities formed after January 1, 2024. This additional report provides information about the individual that files the document that creates the reporting company or registers the foreign reporting company. Under the CTA, the company applicant could be the individual(s) at the accounting or law firm filing the organization documents. The company applicant report requires the same information provided on the beneficial ownership report.

When to Report

For reporting companies that were formed prior to January 1, 2024, reports must be filed with FinCEN no later than January 1, 2025. For reporting companies created after January 1, 2024, reports must be filed with FinCEN no later than 90 days after formation. Entities created after January 1, 2025, will have 30 days to report after their formation.

Reporting companies must ensure that reports contain up-to-date information. While they do not have to report annually, changes to any of the information regarding the reporting company or beneficial owners must be reported within 30 days after the date on which the information changed. As an example, if a new beneficial owner is added or the company changed principal place of business address on March 1, an updated report must be filed no later than March 30.

Keep in mind these CTA rules may affect how an entity reports:

1. Wholly owned subsidiaries of exempt entities are not required to report.
2. Entities that were dissolved at any time in 2024 are required to report regardless of when they were created, even if they ceased to exist before their initial report was due.
3. The issuance of a new driver’s license or passport, due to expiration, will require an updated report to be filed with FinCEN.
4. Entities who were originally required to report who later become exempt, must file an “Exempt from Reporting” report with FinCEN within 30 days of becoming exempt.
5. Entities who were originally exempt and who later are required to report, must file an initial report with FinCEN within 30 days of becoming a reporting company.

Accountants have been instructed by the American Institute of CPAs (AICPA) to not file these reports. Many attorneys also will not be filing these reports on your behalf and will require you to contact them if you want their assistance in filing. FinCEN does not require reports to be filed by attorneys or accountants and entities can file the reports directly with FinCEN.

Failing to Report or Report Inaccurate Information

Unlike state annual reports, failing to report under the CTA or filing inaccurate information carries both civil and criminal penalties. Providing or attempting to provide false beneficial ownership information or failing to report or complete beneficial ownership information can lead to a civil penalty of up to $500 per day, with a maximum fine of $10,000 or up to a 2-year prison sentence.

Ongoing Legal Challenges to the CTA

There have been numerous legal challenges to the CTA. Most recently on December 3, 2024, a federal judge in Texas issued a preliminary injunction against the CTA that stayed the reporting requirements for reporting companies. Challenges to the law and appeals will take time to work through the legal system. Additionally, there is bipartisan support in Congress to maintain the framework of the CTA, but to extend the reporting deadline for existing reporting companies to December 31, 2025. Levin Ginsburg is closely following the ongoing developments regarding the CTA and will keep you up to date. It should be noted that FinCEN continues to accept reports amid all the challenges and a potential deadline change working through Congress.  

The attorneys of Levin Ginsburg can support clients with staying compliant under the CTA and keeping clients informed of latest developments. Please reach out to us if you still have questions about reporting requirements prior to the deadline on December 31, 2024.