Corporate Transparency Act Reporting Enjoined

FinCEN, which is responsible for enforcement of the CTA, recently announced that it will abide by a nationwide preliminary injunction, enjoining enforcement of the CTA and staying the filing deadlines for CTA reporting enforcement so long as the injunction remains in effect. Entities subject to CTA reporting (reporting companies) still can voluntarily submit CTA reports. The CTA requires reporting companies to report to FinCEN information about individuals who own or control those entities.

Crowe observation

While some reporting companies already have filed reports with FinCEN, many were not required to do so until 2025.

Overview of CTA reporting

Under the current CTA rules, certain domestic entities are required to prepare and file beneficial ownership information (BOI) reports with FinCEN. Entities subject to CTA reporting include corporations, limited liability companies, or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe.

The CTA exempts 23 categories of entities from the BOI reporting requirements, including publicly traded companies, banks and credit unions, securities brokers and dealers, public accounting firms, tax-exempt entities, and certain large operating entities.

Different filing time frames apply depending on when an entity is registered or formed or if there is a change to the beneficial owner’s information:

• New entities created or registered after Dec. 31, 2023, must file within 30 days of formation. The 30-day time frame is extended to 90 days for entities created in 2024.
• Existing entities created or registered before Jan. 1, 2024, must file by Jan. 1, 2025.
• Reporting companies that have changes to previously reported information or that discover inaccuracies in previously filed reports must file an update within 30 days of the change or discovery of the inaccuracy.

FinCEN also has granted an additional six months to file BOI reports to certain victims of hurricanes Helene, Milton, Debby, Beryl, and Francine.

BOI reports must be filed electronically with FinCEN. The reports can be filed directly through the FinCEN website or by using one of several software vendors. Note that FinCEN has not specifically approved any software vendors, so appropriate due diligence is advised if selecting a third-party BOI reporting vendor.

Nationwide injunction

Several cases have been filed in federal courts around the country challenging the constitutionality of the CTA. Most recently, the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop Inc. v. Garland issued a 79-page preliminary injunction prohibiting the enforcement of the CTA nationwide and enacting a stay on all deadlines to comply with the CTA reporting requirements. The Justice Department has filed a notice of appeal of the decision. FinCEN has stated on its website that as a result of the litigation “reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force.”

Looking ahead

The American Institute of Certified Public Accountants has issued a statement that although it believes the injunction is effective nationwide, entities subject to the reporting requirement should still be prepared to meet the filing requirements by the due date should the injunction be lifted. Therefore, entities that have not already complied with the CTA should consult competent legal counsel in preparation for complying with BOI reporting requirements should the stay be lifted. Willful noncompliance with the CTA can result in criminal and civil penalties of $500 per day up to $10,000 and up to two years of jail time. Information about the CTA can be found on the FinCEN website.

Portions of AICPA materials reprinted with permission. Copyright 2024 by AICPA.