Dean:
Author: Dean Smith (PhD, CFP, TEP, CPA, CA, RWM; Partner)
The Corporate Transparency Act (CTA) – The Saga Continues
It looks like the CTA is back on (for now). For a background, please see our prior U.S. Tax Trends posted on October 18, 2024, December 5, 2024 and December 16, 2024.
On December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit ruled in favor of the U.S. Department of Justice reversing the injunction that had previously been granted by the U.S. District Court for the Eastern District of Texas. The ruling reinstates the January 1, 2025, filing deadline (see below, however, for FinCEN’s response).
The Fifth Circuit, located in New Orleans, stated in its order that the government made a strong showing that it is likely to success on the merits in defending the CTA’s constitutionality.
In an email to CBS MoneyWatch, a FinCEN spokesperson said the appeals court ruling “underscores the importance and urgency of the Corporate Transparency Act for national security.”
“The Corporate Transparency Act levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage,” the spokesperson added.
In response, FinCEN has issued revised filing deadlines.
• Reporting companies that were created or registered prior to January 1, 2024, have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
• Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
• Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
• Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.
• Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.
• As indicated in the alert titled “Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)”, Plaintiffs in National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)—namely, Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024)—are not currently required to report their beneficial ownership information to FinCEN at this time.
It is clear, however, that the fight is not over. In response, the National Small Business Association issued a press release containing the following statement from NSBA President and CEO Todd McCracken.
“This unwelcome roller-coaster ride couldn’t come at a worse time for America’s small businesses. Unfortunately, because the Court agreed to hear the expedited appeal in their case, the ruling came quick, reversing the few weeks of relief America’s small-business owners thought they had.
“This most recent setback comes on the back of Congress’ failure to include language to delay the CTA in its final stopgap spending bill passed late last week. Within the span of a week, small-business owners thought they had at least a few extra weeks to comply, then they thought they had a full year, now it’s just ONE week.
“This uncertainty is beyond frustrating for NSBA’s members and the millions of small businesses we represent. Since the beginning, NSBA has warned against the CTA which could force well-intending small businesses to pay fines up to $591 per DAY and up to two years of jail time.
“And now, lawmakers and the courts are effectively giving those small businesses ONE WEEK to avoid these massive fines and potential jail time. It is unconscionable.
“NSBA will continue to fight. We will not go quietly; we will push for the unconstitutional CTA to be overturned through our lawsuit and repealed by Congress. It’s what America’s small businesses deserve.”
Where does this go now?
At this point neither side is backing down. Groups fighting against the regulation could seek relief from the U.S. Supreme Court or, alternatively, ask the 5th Circuit for an additional review of their decision.
What should you do?
Given the government’s position, I am of the opinion (this is just my personal opinion) that, in the long run, the government will ultimately prevail. Given the potential penalties, companies should consider filing their Beneficial Ownership Information Report (BOIR) as soon as possible. We will, however, strive to keep our readers up to date on any further developments.
