Corporate Transparency Act: Will it Stay or Will it Go?

More than 30 million entities are expected to fall within the purview of the Corporate Transparency Act, which went into effect on January 1 of this year.

Whether CTA stays or is ruled unconstitutional, don’t leave it to the last day to find out whether your business will be required to file reports concerning beneficial ownership information.

The Corporate Transparency Act (the “Act”) came into effect on January 1, 2024. The Act requires certain entities to file reports concerning certain beneficial ownership information (“BOI”) for the entity with the Financial Crimes Enforcement Network (FinCEN), a division of the United States Treasury Department. The Act is part of the federal government’s fight against money laundering efforts and requires the disclosure of the identity of the people who own or control an entity.

More than 30 million entities, mostly small business entities and entities for passive businesses, are expected to fall within the purview of the Act. Entities that existed prior to January 1, 2024 will have all year to file their BOI reports, however any entity formed after has only 90 days from the date of formation to file. Yet, five months into the year, many of these entities remain unaware of their BOI reporting obligations under the Act.

The breadth of the Act resulted in efforts by business owners and professional advisors to delay or even prevent the Act from taking effect, citing the burdens the BOI reporting will place on small businesses due to the considerable legwork required to comply with the Act. Such efforts were largely ineffective until this past March when the National Small Business Administration received a favorable ruling from a federal district court in Alabama with respect to the constitutionality of the Act. The ruling, which only applies to the then-current members of the National Small Business Administration, is currently on appeal but is viewed by many to be a victory and the first stop on the road to the highest court.

Without a more definitive and further reaching decision with respect to the unconstitutionality of the Act, most entities required to file by the end of the year will remain in a holding pattern—waiting to see if their reporting obligation changes. For those entities created after January 1, 2024, there remains less flexibility—compliance must occur within 90 days.

The future of the Act and the BOI reporting obligations of entities continues to be a developing matter. Isasac Wiles will provide a series of follow-up articles to provide additional details and insights of the Act. Any questions surrounding the Act or potential BOI reporting obligations can be directed to cta@isaacwiles.com.