Legal Update: More Corporate Transparency Act Drama
This, without a doubt, it one of the strangest business law issues I have ever followed. Strange due to the rapid fire way in which the enforcement of a federal law is stopped by a federal trial court, reinstated by an appeals court, which then reverses itself days later. Usually legal issues take months if not years to wind their way through the trial and appellate court system. There is a LOT of legal procedure in this update, and it can seem convoluted upon the first reading, but please read through this entire update as it may affect your business.
For those that wonder what the Corporate Transparency Act (“CTA”) is, the quick view is as follows:
The CTA is a federal law that requires almost all small businesses (under $5 Million in annual revenue) to file a disclosure with the US Treasury of the identity of the shareholders, and some other information. This is called a Beneficial Ownership Information (“BOI”) filing. If you are reading this, your corporation or LLC is likely required to file.
What penalties do individuals face for violating BOI reporting requirements?
As specified in the Corporate Transparency Act, a person who willfully violates the BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues. However, this civil penalty amount is adjusted annually for inflation. As of the time of publication of this FAQ, this amount is $591.
A person who willfully violates the BOI reporting requirements may also be subject to criminal penalties of up to two years imprisonment and a fine of up to $10,000. Potential violations include willfully failing to file a beneficial ownership information report, willfully filing false beneficial ownership information, or willfully failing to correct or update previously reported beneficial ownership information.
Source: FinCEN FAQ K.2.
The CTA has been the subject of much litigation, as many business groups believe the CTA is unconstitutional as written. In a Christmas Eve update, I wrote about this. If you did not read that update, please click below and then come back to see what the current state of play on this topic.
Only days later, on December 26, 2024, the Fifth Circuit reversed itself (!!!) and vacated its own stay of the injunction. What that means is that the injunction, which prevents enforcement of the CTA, was back in force, and taxpayers are not - as of right now - required to submit their BOI filing.
On December 31, 2024, the US Department of Justice filed an emergency application to the US Supreme Court seeking, among other things, to obtain a ruling that the nationwide stay should be lifted, and that the CTA should be enforceable while the federal courts decide on the constitutionality of the CTA. You can read the US DOJ’s application here:
What Do We Do Now?
Yesterday (January 2, 2025) FinCEN published the following guidance on its website:
In light of a recent federal court order, 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. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
Thus, potential filers - and there are a lot of you - should watch this space for updates, as the penalties for noncompliance can be significant if the courts decide to reinstate the CTA. We do not yet have a ruling on the merits of the appeal before the Fifth Circuit Court of Appeals.
As this matter evolves, there will be additional updates here. Subscribe to stay up to date.
J. Bryan Tuk is an attorney with twenty five years experience counseling small business, entrepreneurs and creatives. Learn more at Tuk Business & Entertainment Law.