Wednesday, May 22, 2024

A Tourist’s Guide to the Corporate Transparency Act

If you’re involved in the legal or business world, it is likely that you have heard talk of the Corporate Transparency Act (“CTA”) and the Beneficial Ownership Information Reports (“BOIRs”) the CTA requires.

The CTA was passed in 2021, and since that time the Financial Crimes Enforcement Network (“FinCEN”) has been issuing regulations. Beginning January 1, 2024, millions of businesses are now required to report. In this post, I write about my personal experience with the CTA and filing BOIRs. I also include here a general update on the latest happenings related to the CTA.

Filing BOIR Reports

Prior to January 1, 2024, the public did not know what the reporting system for filing BOIRs would look like. We knew what types of information would be reported but not how to report it. (FinCen did not preview the filing system prior to January 1, 2024.) Understandably, this lack of insight made many people, including me, uneasy about how difficult or unwieldy the reporting site might be.

To my relief, filing BOIRs is relatively simple (once you go through the sometimes puzzling process of determining who the beneficial owners of an entity are). First, FinCen provides you the option to file online, or to fill out an interactive PDF and upload the file. Second, the information required is relatively straightforward (name, address, taxpayer ID number, copy of photo ID), and the online filing leads you through the process. The ease of filing was a pleasant surprise.

Also, there are people who may be included frequently in BOIRs – for example, an attorney who files formation documents for multiple entities or an individual who has a controlling interest in a number of entities. Hoping to ease the burden of filing the same information for these individuals repeatedly, FinCEN permits these individuals to obtain a “FinCEN identifier.” As soon as these FinCEN identifiers became available, I took the opportunity and obtained one for myself. Now, if I ever need to be included within a BOIR, I simply enter my FinCEN identifier, making the filing even easier. For those of you who will be included on multiple BOIRs, I would highly recommend a BOIR.

CTA Latest Happenings

To many, the CTA and the BOIRs required by it has been extremely controversial, with some arguing that this overly burdensome legislation is a trap for the unwary. Plenty more criticized FinCEN and the Treasury Department for its failure to adequately inform the public of their obligations under the CTA. Some legislators – urged by groups lobbying on behalf of small businesses – have proposed legislation which would delay the filing requirements of the CTA and the accompanying jail time and penalties by one year. And a bill overwhelmingly passed by the U.S. House 420-1 in December 2023 would have had a similar effect.

The biggest piece of news to hit regarding the CTA was the case of National Small Business United v. Yellen in the Northern District of Alabama. In that case, the court held that the CTA exceeded the limits of the U.S. Constitution, enjoining the Treasury Department from enforcing the CTA against the plaintiffs in that case. The Treasury Department has filed a notice of appeal, and has indicated that it will “continue to implement the Corporate Transparency Act as required by Congress...”

While there have been many headwinds and will surely be more, the CTA is still in force, and businesses continue to comply: the Treasury Department has reported that it has already received over 1.7 million BOIRs as of May 6, 2024.

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