For those of you who have been following the on again – off again nature of this law and just want a quick answer as to the current status of the Corporate Transparency Act, it is back in force and you should be prepared to file the Beneficial Owner Information Report with FinCEN. If you haven’t been following, here is the full story and an explanation of why this update is needed.
What is a Beneficial Owner Information Report (BOI)?
In 2021, Congress passed the Corporate Transparency Act (CTA) to combat money-laundering and the flow of illicit funds through American companies. The law requires many business owners to submit various pieces of identification, effectively dissolving the anonymity that has long been enjoyed by some business owners.
The government was set to begin enforcing the CTA on January 1, 2025. That was until December of 2024 when a United States District Court in Texas granted an injunction, effectively halting enforcement of the CTA until the courts could further sort out the issue.
Who Must File Under CTA?
The CTA requires all beneficial owners of a corporation, LLC, or other entity created by filing with the state, to file a Beneficial Ownership Information (BOI) Report. The process of registering is not overly burdensome, but it created a whirlwind-like effect in law offices and accounting firms all over America, especially as 2024 came to a close.
It is worth noting that “large operating companies” are exempt from this filing requirement. The logic behind this is that the bigger a company is, the less likely it is that there is an anonymous owner running afoul of the law. Remember, the purpose of the CTA is mainly to target shell organizations who’s purpose is largely to channel illicit funds.
A large operating company is one that:
- Has 20+ full-time employees in the United States;
- Has a physical office in the United States (and an “operating presence” therein); and
- Has filed a tax return in the United States, indicating $5 million or more in gross receipts.
If you own a company in the United States that does not meet those three requirements, then it is likely you need to file under the CTA. There are other exemptions, as well. Most of the other exemptions pertain to companies that are in heavily-regulated industries (i.e. how banks have to report to the SEC). Aside from that, it is likely you may need to file.
What Information Must be Reported?
As noted above, the filing process is not overly burdensome. The company must report:
- It’s full legal name;
- Any trade names (i.e. doing business as…);
- Address of its principal place of business;
- Jurisdiction where the business was formed; and
- TIN (taxpayer identification number).
Further, all beneficial owners of reporting companies must also report some personal information. Beneficial owners must report:
- Their full legal name;
- Date of birth;
- ID number from a government-issued piece of identification;
- Current address (residential); and
- A picture of the piece of identification from which the number in (3) was obtained.
Per the Financial Crimes Enforcement Network (FinCEN), a beneficial owner is an individual who either directly or indirectly:
- Exercises “substantial control” over the reporting company; or
- FinCEN defines one holding “substantial control” as anyone who meets any of the following criteria: 1) the individual is a senior officer; 2) the individual has the authority to appoint or remove certain officers or directors; 3) the individual is an important decision-maker for the reporting company; or 4) the individual has any other form of substantial control over the reporting company.
- Owns or controls at least 25% of the reporting company’s ownership interests.
While the term “substantial control” seems vague, one should examine those four avenues of “substantial control” to best determine whether they meet such criteria. While those who do not have substantial control are not beneficial owners, it is critical that anyone who believes they may have substantial control to delve deeper into these criterion to determine whether they are required to file.
Anyone who is required to file must do so on the FinCEN website. There is no fee to file a BOI report.
Note that any changes to the information filed with the FinCEN (i.e. a change in a beneficial owner’s residential address) must be changed in an updated report and filed within thirty (30) days of the occurrence of said change. I repeat, any changes to the business’ ownership structure or the owners MUST be reported within 30 days. This is perhaps the most onerous part of the process and it is likely that people will inadvertently fail to file within such a short timeframe.
If you create a new business in 2025 or after, and you are required to file a BOI, you must file within 90 days of formation. As you can see, keeping up with the current status of the Corporate Transparency Act is imperative!
What if Your Business is Owned in Trust?
A trust is a legal entity that can hold title to certain assets, helping individuals pass wealth and assets onto others. One of the assets that people commonly put into their trusts are business interests. So what are the obligations, and on whom do they fall, when a trust owns a business that would ordinarily have to report under the CTA?
First off, the Trustee of the trust would usually have to report. Since a Trustee generally becomes the technical owner of property put into a trust, a Trustee would often have much power over a company whose ownership interests lie in trust. If the managers/officers of the business are different from the Trustee, they must also report. The murkier determination comes when discerning whether a beneficiary must report as well.
A beneficiary of a trust that owns a reporting company may have to file if:
- The beneficiary has the authority to appoint, remove, or replace a Trustee;
- The beneficiary can demand distribution of the trust assets;
- The beneficiary is the sole recipient of trust income/principal; or
- The beneficiary can exercise power of appointment over trust property (meaning they can direct such property to another beneficiary).
A beneficiary likely does not have to file if:
- The beneficiary only has a future interest in the business ownership through inheritance; or
- The beneficiary is a contingent beneficiary (note, that beneficiary would have to report once they become a current beneficiary with specific rights).
For many, it may be difficult to discern if you, as a beneficiary, satisfy any of the criteria above. For making this determination, it may be best to consult with an experienced estate planning attorney who can accurately interpret the trust to determine your status as a beneficiary.
The Ever-Changing Landscape (Constant Change in Status of the Corporate Transparency Act)
To help keep us, and other professionals, keep with the current status of the Corporate Transparency Act, and whether you need to file your BOI report, here is a recap of the major relevant cases below:
December 3, 2024
The United States District Court for the Eastern District of Texas ruled in favor of the plaintiff, Texas Top Cop Shop, and issued a nationwide injunction. This effectively halted the enforcement of the Corporate Transparency Act.
December 17, 2024
The same District Court denied a motion by the government to stay the injunction. This would have effectively reversed the December 3rd ruling. That motion was denied. After this ruling, enforcement of the CTA was still halted.
December 23, 2024
The Fifth Circuit Court of Appeals granted the emergency motion brought by the government. This motion was to stay the injunction pending appeal. This decision did effectively reverse the December 3rd decision. As of December 23rd, the CTA was to be enforced while the appeals process for the original case, Texas Top Cop Shop, et al. v. Garland, et al., was pending. After this ruling, the government was allowed to enforce the CTA.
December 26, 2024
A panel from the Fifth Circuit Court of Appeals vacated the motion in part. This decision effectively brought us back to where we were post-December 3rd. This means that the CTA was not being enforced.
January 23, 2025
The Supreme Court issued an emergency stay, without reasoning, that effectively nullifies the injunction that had been previously granted. Normally, this would indicate that the CTA is to be enforced while the appeal is pending. However, there is still an active injunction from a separate case regarding the Corporate Transparency Act. Therefore, registration was still voluntary.
February 18, 2025
A federal court lifted the remaining injunction that was blocking enforcement of the CTA. This means that existing companies are now obligated to report, with a new deadline of March 21, 2025.
As you can see, there has been lots of back-and-forth within the courts over the past month or so, trying to sort out whether the CTA should be enforced while the appeals process is ongoing. So if your head was spinning due to the perpetual flip-flopping that has been going on, you aren’t alone.
So – What is the Current Status of the Corporate Transparency Act?
Please note that FinCEN has indicated that it may modify reporting requirements and a bill has been passed by the House of Representatives extending the deadline to comply with the CTA. However, for those who just want a quick understanding of where we are, if you haven’t filed your BOI report, we strongly recommend that you do so. Failure to file your BOI can result in significant daily penalties. We will provide additional updates as required.
Written by: Attorney Brendan R. Hanley
