How to ensure compliance with the reinstated Corporate Transparency Act

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Updated 3/3/2025 after FinCEN’s decision to not issue fines or penalties in connection with Beneficial Ownership Information Reporting deadlines.

Catch up with the Corporate Transparency Act below ↓

The Corporate Transparency Act (CTA) is a critical piece of legislation aimed at improving transparency and preventing illicit activities such as money laundering, tax fraud, drug trafficking, and terrorism financing.

For tax and accounting professionals, understanding the CTA is essential to ensure compliance and assist clients in meeting their legal obligations. This blog post will provide a comprehensive overview of the CTA, its history, and the current status, including important facts for individuals with an ownership interest in a limited liability company (LLC).

Overview of the Corporate Transparency Act

The Corporate Transparency Act (CTA) introduces significant reporting requirements for beneficial ownership information (BOI). Here are the key points:

• • Beneficial Ownership Information (BOI) reporting requirement:
    • Individuals with an ownership interest in an LLC must disclose personal data to the Financial Crimes Enforcement Network (FinCEN). This includes names, addresses, and unique identifying numbers such as Social Security numbers or passport numbers.
  • Penalties for non-compliance:
    • Non-compliance with the CTA can result in severe penalties, including up to two years of jail time and a $10,000 fine per violation.
  • Purpose:
    • The primary goal of the CTA is to deter illicit activities by anonymous shell companies, thereby enhancing national security and financial transparency.

Corporate Transparency Act timeline of events

The CTA has faced several legal challenges since its enactment:

• • Enactment:
    • The CTA was enacted in 2021 as part of the National Defense Authorization Act.
  • Initial Legal Challenge:
    • In January 2023, a federal judge in Texas ruled the law unconstitutional, halting its enforcement.
  • Lifting of the Injunction:
    • On February 18, 2025, the same judge lifted the block, allowing the law to be enforced. There may be future appeals, but currently, supporters of the law are satisfied with the decision made by the Texas court.

Current status of the CTA and important facts for LLC owners

The current status of the CTA is as follows:

• • Reinstatement of the Act:
    • The U.S. District Court for the Eastern District of Texas has lifted the nationwide injunction, making the BOI reporting requirement enforceable again.
  • Updated deadlines:
    • The deadline for businesses to file their initial, updated, and/or corrected BOI reports has been extended to March 21, 2025.
    • However, FinCEN said it would not take enforcement action until an interim final rule is issued.
    • Treasury said that it will be revising the rule to apply only to foreign entities.
  • Exemptions:
    • Companies that were members of the National Small Business Association prior to March 1, 2024, are exempt from filing BOI reports due to a separate lawsuit.
  • Congressional action:
    • The House has unanimously passed a bill to delay the reporting requirement until January 1, 2026. The Senate has not yet voted on this bill, but a companion bill has been introduced by Sen. Tim Scott.
  • Treasury’s commitment:
    • FinCEN has announced its intention to revise the BOI reporting rules to reduce the regulatory burden on lower-risk entities, including many U.S. small businesses. This could mean simpler reporting requirements or extended deadlines for these entities.

These developments highlight the shifting dynamics of BOI reporting requirements. Tax and accounting professionals must keep their clients and businesses informed about any legal changes and deadlines to ensure compliance.

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Steps for small businesses to file a Beneficial Ownership Information Report (BOIR)

For tax and accounting professionals and their clients, here are the steps to file a BOIR:

• 1. Determine eligibility:
     • LLCs and corporations must file unless they qualify for an exemption, such as being a large operating company with over 20 full-time employees and over $5 million in gross sales, an inactive entity established before January 1, 2020, or a nonprofit with confirmed status.
  2. Identify beneficial owners:
     • Identify and list any individuals who own or control 25% of your company or exercise substantial control. Inform these beneficial owners about the CTA requirements.
  3. Organize information:
     • Create a procedure to keep all personal information organized, secure, and current. This includes filing updated reports if there are changes in personal information or beneficial ownership.
  4. File the report:
     • File your report online via FinCEN. You can either complete and upload a PDF form or use FinCEN’s online platform to submit the required information and identification documents for each beneficial owner.

Implications for tax and accounting professionals

• • Client communication:
    • Tax and accounting professionals should inform their clients about the new deadlines and the potential for further changes.
  • Compliance preparation:
    • Firms should prepare their clients for the BOI reporting requirements, ensuring they understand the necessary steps to comply.
  • Stay informed:
    • Keep an eye on further developments, as there could be additional legal challenges or legislative changes.

Ensuring Corporate Transparency Act compliance and supporting your clients

The lifting of the injunction is a significant step forward in the implementation of the CTA, and it underscores the government’s commitment to enhancing transparency and combating financial crimes.

Tax and accounting professionals play an important role in helping their clients navigate these new requirements and ensure compliance. By staying informed and proactive, you can help your clients meet their obligations under the Corporate Transparency Act.

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