Resources

Beneficial Ownership Information

December 2024

Court halts BOI reporting; AICPA urges preparedness

A federal district court, finding that the Corporate Transparency Act (CTA) is likely unconstitutional, issued an order Tuesday prohibiting the enforcement of the CTA and the beneficial ownership information (BOI) reporting rule in the CTA’s accompanying regulations.

The injunction, which according to the court should apply nationally, was issued in Texas Top Cop Shop, Inc. vs. Garland, No. 4:24-CV-478 (E.D. Texas 12/3/24).

Under the injunction, the CTA and the BOI reporting rule cannot be enforced, and reporting companies need not comply with the CTA’s Jan. 1, 2025, BOI reporting deadline pending a further order of the court.

The Financial Crimes Enforcement Network (FinCEN), which enforces the CTA, is reviewing the order, a spokesperson said Wednesday, pointing out that other courts have denied similar requests. The Justice Department (DOJ) filed a notice of appeal on Thursday night.

An AICPA statement, released before the DOJ notice of appeal, acknowledged the potential effects of the injunction and urged CPAs assisting clients with BOI reporting to be prepared.

“Under the injunction, FinCEN is barred from enforcing BOI filing requirements while the case is pending,” the statement said. “Best practices dictate that at a minimum those assisting clients with BOI report filings gather the required information from the clients and are prepared to file the BOI report if the injunction is lifted. While it is unlikely that the injunction will be lifted prior to the final outcome of the proceedings, we advise being prepared in the event that there is a reversal.”

Constitutional issues

The court, calling the CTA “quasi-Orwellian,” found that the legislation “is likely unconstitutional as outside of Congress’s power.” It further found that “because the reporting rule implements the CTA, it likely is unconstitutional for the same reasons.”

The government argued that Congress has the power to enact the CTA under the Commerce Clause and under the Necessary and Proper Clause.

Regarding the Commerce Clause, the court stated, “The CTA is a law enforcement tool — not an instrument calibrated to protect commerce; an exercise of police power, rather than a regulation of an activity which might impair commerce among the several states. This the Commerce Clause will not tolerate.”

The government also claimed that Congress had the authority to pass the CTA because of its broad power under the Necessary and Proper Clause to enact legislation for the regulation of foreign affairs and pertaining to national security.

The court disagreed, saying, “The CTA, by its very language, does not regulate any issue of foreign affairs. It regulates a domestic issue: anonymous existence of companies registered to do business in a U.S. state and their potential conduct.”

The plaintiffs also argued that the CTA is unconstitutional under the First and Fourth amendments, but the court did not address those arguments.

Scope of order

The largest plaintiff in the case is the National Federation of Independent Business (NFIB), which has about 300,000 members. The government argued that if the court enjoined the CTA and reporting rule to cover those members, the effect would be a nationwide injunction. The court agreed with the government’s point and noted the controversy around nationwide injunctions. However, the court concluded that, given the extent of the constitutional violation shown by the plaintiffs, the injunction should apply nationwide.

Background

Under the CTA, P.L. 116-283, which Congress passed in 2021 as an anti-money-laundering initiative, reporting companies must disclose the identity and information about beneficial owners of the entities. For new entities incorporated after Jan. 1, 2024, reporting companies must also disclose the identity of “applicants” — defined as any individual who files an application to form a corporation, limited liability company, or other similar entity.

Willful violations are punishable by a fine of $591 a day, up to $10,000, and two years in prison with similarly serious penalties for unauthorized disclosure.

Reaction to order

The court’s order is “a massive first step,” Beth Milito, executive director of the NFIB Legal Center, said in an interview. “This was, from our perspective, a David and Goliath fight, and I’m happy that he had such a decisive win in the first round.”

If the government appeals, the case would next go to the Fifth Circuit, Milito said. The preliminary injunction likely would remain in effect through the appeal process or until the court issues another order, she said.

A statement from Melanie Lauridsen, the AICPA’s vice president–Tax Policy & Advocacy, said, in part:

“The AICPA understands the confusion and anxiety that business owners have struggled with regarding the BOI reporting requirement. We believe that the injunction … is applicable nationwide to all small businesses. While we are still awaiting formal guidance from FinCEN, if this injunction is applicable as we believe, many small businesses would receive the much-needed BOI reporting relief. The AICPA will continue an open dialogue with FinCEN in the hopes that our questions and concerns will be addressed, and we will continue to advocate on behalf of small businesses for clarity and relief.”

Todd McCracken, the president and CEO of the National Small Business Association (NSBA), the main plaintiff in an Alabama case where the judge declared the CTA unconstitutional, applauded the decision in a post on the NSBA site. It is “a huge relief to the millions of small business owners across the country who were facing a wildly complex regulatory regime,” along with fines and prison time, he said.

The AICPA has created a BOI reporting resource center.

November 2024

FinCEN Extends Corporate Transparency Act Reporting Deadlines for Hurricane Victims

The Financial Crimes Enforcement Network (FinCEN) announced a six-month extension for certain businesses affected by recent hurricanes to submit their beneficial ownership information (BOI) reports under the Corporate Transparency Act (CTA). This extension responds to the challenges faced by companies in designated disaster areas.

Eligibility Requirements

The six-month extension applies to companies that meet two key requirements:

1. Filing Deadline: The deadline for filing an initial or updated BOI report must fall between specific dates related to recent hurricanes and tropical storms. Hurricane Helene: September 22, 2024 – December 21, 2024.

2. Principal Place of Business: The reporting company’s principal place of business must be located in an area designated by both the Federal Emergency Management Agency (FEMA) for individual or public assistance and the Internal Revenue Service (IRS) for tax relief due to the hurricanes.

For example, a reporting company created on May 8, 2024, would normally have a BOI report deadline of August 6, 2024; however, if the company meets both qualifications, the new filing deadline would be February 6, 2025.

IRS Designated Areas

The IRS automatically provides taxpayers whose registered addresses are in disaster areas with extended deadlines for filing returns and paying taxes. Currently, taxpayers in South Carolina who have received extensions for their 2023 tax returns now have until May 1, 2025, to file. 

It is essential to regularly check which counties are designated for tax relief following the hurricanes, as this may qualify your company for an extension on BOI reporting. Additionally, staying informed about the IRS’s designation of disaster areas is crucial, as new regions may be added, making those businesses eligible for the six-month reporting extension as well.
FinCEN has stated that it will also work with reporting companies outside the designated disaster areas, provided they have essential records in the affected regions. Companies outside the affected areas seeking assistance with their BOI reporting are encouraged to reach out to FinCEN.

While the extension provides needed relief to businesses in the affected areas, it is important to note that businesses formed before 2024 and not meeting the two-part test are still required to submit their BOI report to FinCEN before the January 1, 2025, filing deadline.

If you have any questions about whether your reporting company qualifies for the hurricane reporting extension, please contact us so we can provide assistance.

September 2024

Corporate Transparency Act— FinCEN Requires Beneficial Ownership Information (BOI) – Reporting Requirement

Many companies are required to report information to FinCEN about the individuals who ultimately own or control them. FinCEN began accepting reports on January 1, 2024, and will have until January 1, 2025, to file its initial beneficial information report.

Beneficial ownership information reporting is not an annual requirement. A report only needs to be submitted once, unless the filer needs to update or correct information.

What sort of information is required to be reported?

Companies must report the following information:

  • Full name of the reporting company, any trade name or doing business as (DBA) name, business address, state or Tribal jurisdiction of formation, and an IRS taxpayer identification number (TIN).

Additionally, reporting companies must provide four pieces of information about each beneficial owner:

  • Information on the beneficial owners of the entity and for newly created entities, the company applicants of the entity is required. This information includes:
    • Name
    • Birthdate
    • Address
    • The identifying number and issuer from one of various acceptable government documents (i.e. a driver’s license or passport)

Penalties for non-compliance can result in criminal and civil penalties of $591 per day and up to $10,000 with up to two years of jail time.

Most company owners won’t need assistance with filing. If you do, here are some resources and recommendations:

As explained in a FinCEN release, the bipartisan Corporate Transparency Act (CTA), enacted in 2021 to curb illicit finance, requires many companies doing business in the United States to report information about the individuals who ultimately own or control them. The intent of the BOI reporting requirement is to help US law enforcement combat money laundering, the financing of terrorism and other illicit activity.

The CTA is not a part of the tax code. Instead, it is a part of the Bank Secrecy Act, a set of federal laws that require record-keeping and report filing on certain types of financial transactions. Under the CTA, BOI reports will not be filed with the IRS, but with the Financial Crimes Enforcement Network (FinCEN), another agency of the Department of Treasury.

What entities are required to comply with the CTA’s BOI reporting requirement?

  • Entities organized both in the U.S. and outside the U.S. may be subject to the CTA’s reporting requirements. Domestic companies required to report include corporations, limited liability companies (LLCs) or any similar entity created by the filing of a document with a secretary of state or any similar office under the law of a state or Indian tribe. Homeowner associations (HOAs) are required to report unless they are organized as a 501(c)(3) tax-exempt organization.
  • Domestic entities that are not created by the filing of a document with a secretary of state or similar office are not required to report under the CTA.
  • Foreign companies required to report under the CTA include corporations, LLCs or any similar entity that is formed under the law of a foreign country and registered to do business in any state or tribal jurisdiction by filing a document with a secretary of state or any similar office.

Are there any exemptions from the filing requirements?

There are 23 categories of exemptions. Included in the exemptions list are publicly traded companies, banks and credit unions, securities brokers/dealers, public accounting firms, tax-exempt entities and certain inactive entities, among others. Please note these are not blanket exemptions and many of these entities are already heavily regulated by the government and thus already disclose their BOI to a government authority.

In addition, certain “large operating entities” are exempt from filing. To qualify for this exemption, the company must:

  • Employ more than 20 people in the U.S.
  • Have reported gross revenue (or sales) of over $5M on the prior year’s tax return; and be physically present in the U.S.

Who is a beneficial owner?

  • Any individual who, directly or indirectly, either:
  • Exercises “substantial control” over a reporting company, or
  • Owns or controls at least 25 percent of the ownership interests of a reporting company
  • An individual has substantial control of a reporting company if they direct, determine or exercise substantial influence over important decisions of the reporting company. This includes any senior officers of the reporting company, regardless of formal title or if they have no ownership interest in the reporting company.
  • The detailed CTA regulations define the terms “substantial control” and “ownership interest” further.

When must companies file?

  1. There are different filing timeframes depending on when an entity is registered/formed or if there is a change to the beneficial owner’s information.
  2. New entities (created/registered in 2024) — must file within 90 days
  3. New entities (created/registered after 12/31/2024) — must file within 30 days Existing entities (created/registered before 1/1/24) — must file by 1/1/25
  4. Reporting companies that have changes to previously reported information or discover inaccuracies in previously filed reports — must file within 30 days

Learn more about reporting deadlines.