The Corporate Transparency Act (CTA) is a federal law requiring businesses to disclose specific ownership information to the US Financial Crimes Enforcement Network (FinCEN). The CTA filing requirements apply to corporations, LLCs, and partnerships, with exceptions for nonprofits and inactive companies. The goal of the CTA is to enhance transparency and assist the federal government in combating illicit activities such as money laundering and tax evasion.
Filing Requirements
All reporting companies must submit their FinCEN BOI reports along with government-issued identification (such as a driver’s license or passport) to inform the government of all individuals having a 25% or more beneficial interest in each company. Companies formed after December 31, 2023, must file within 90 days of formation. Those formed before January 1, 2024, must file by December 31, 2024 (extended to January 13, 2025, by the Texas Federal District Court on December 23, 2024).
Failure to comply with these requirements can result in steep penalties, including fines of up to $500 per day, capped at $10,000 per entity. Additionally, knowingly providing false information may lead to criminal penalties.
Legal Challenges to the CTA
Since enacting the CTA, several lawsuits arose contesting the constitutionality of the law. On December 2, 2024, a Texas Federal District Court entered a nationwide preliminary injunction enjoining enforcement of the CTA. Essentially, the arguments against enforcement include:
- The CTA is an invalid exercise of the governments enumerated powers under the Tenth Amendment because neither the Commerce Clause nor the Necessary and Proper Clause gives Congress the power to enact this law;
- Congress cannot regulate commerce by compelling new requirements for law enforcement purposes;
- Mandatory disclosures under the CTA are not justified as necessary and proper to regulate commerce nor is the CTA connected to Congress’s constitutional authority over foreign affairs; and
- The CTA seeks to regulate the conduct of companies created under state law where the states have jurisdiction.
Current Status
On December 23, 2024, a motions panel of the 5th Circuit Court granted the government’s motion to stay the preliminary injunction pending appeal. In other words, the 5th Circuit Court reinstated the government’s authority to enforce the CTA requirements during the appeals process. Thus, companies were once again required to file FinCEN BOI reports or suffer hefty fines.
Today, December 27, 2024, the 5th Circuit Court vacated the December 23, 2024 stay, thereby reinstating the preliminary injunction that stops the government from enforcing the CTA requirements and penalties.
The bottom line is that, currently no one is required to file the FinCEN BOI reports. The matter is being considered by the 5th Circuit Court of Appeals, and the Court will issue a final ruling that could then be appealed to the Supreme Court of the United States.
