The Corporate Transparency Act (the “CTA”) took effect on January 1, 2024, and requires certain entities to report information that has not previously been required by the federal government. According to federal government estimates, the CTA will apply to 32.6 million entities in 2024, and 5 million newly formed entities each year thereafter. Note that non-compliance may result in fines ranging from $500 to $10,000 per violation, along with potential jail time of up to two years.

Purpose of the CTA:

The CTA was enacted to improve transparency regarding entity ownership. The CTA is intended to combat the misuse of corporations and other entities regarding tax fraud, money laundering, and other financial crimes. The CTA establishes a database of beneficial ownership information, which will be used by the Financial Crimes Enforcement Network (“FinCEN”) to aid its investigations. Congress has determined that the privacy previously granted to the owners of corporations or other entities has been exploited by criminal enterprises to facilitate illegal activities, creating an obstacle for federal law enforcement in conducting investigations.

New Requirements:

An entity formed on or after January 1, 2024, must file its beneficial ownership information within 90 days of the entity’s creation. Additionally, an entity formed on or after January 1, 2024, will need to report applicant information as defined in the CTA. An entity existing before January 1, 2024, must file its beneficial ownership information before January 1, 2025.

A covered entity is required to update its beneficial ownership information within 30 days anytime there is a change to the beneficial ownership. For example, an update will likely be required after the sale, acquisition, merger, death of beneficial owner, or any other reason for which the entity becomes aware that the information previously filed has become inaccurate.

Although the requirements of the CTA may seem simple at first glance, compliance may become complicated depending on each entity’s specific structure and formation. Attorneys at Underwood Law Firm, P.C. stand ready to assist and advise you with complying and maintaining compliance with this new law. Non-compliance comes with steep civil fines and potential criminal issues, therefore, your immediate attention is absolutely necessary.

This letter is intended only to be a general overview of the CTA and does not constitute general legal advice or legal advice about your particular situation. For more information, please contact the Underwood Law Firm.

December 22, 2023

 

UPDATE:

On December 3, 2024, the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. et al. v. Garland issued a preliminary injunction prohibiting enforcement of the Corporate Transparency Act (the “CTA”). The CTA imposes civil and criminal penalties for non-compliance. The preliminary injunction is nationwide.  It is applicable to all entities required to report to the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”) pursuant to the CTA. Many entities faced a January 1, 2025 reporting deadline.

This ruling is subject to further proceedings, which may affect the preliminary injunction. Reporting obligations and enforcement could resume if the PRELIMINARY injunction is later VACATED.

For now, any entity required to report pursuant to the CTA should stay alert to the status of the injunction.  While the preliminary injunction is pending, each entity required to report to FinCEN should continue to collect the necessary information and be ready to report to FinCEN on short notice. To avoid the risk, uncertainty, and tight filing deadlines if the injunction is overturned, some entities may opt for peace of mind by reporting  to FinCEN before the January 1, 2025 deadline.  We encourage you to discuss the CTA and the preliminary injunction with legal counsel to decide whether to file the report with  FinCEN during the pendency of the preliminary injunction and before the deadline.

This statement is intended only to be a general overview of the preliminary injunction and does not constitute general legal advice or legal advice about your particular situation.

December 5, 2024