Deadline for Registering with FinCEN Delayed Following Preliminary Injunction
Court Decision Provides Temporary Reprieve on Filing
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the Corporate Transparency Act (“CTA”) in Texas Top Cop Shop, Inc. vs. Garland, No. 4:24-CV-478 (E.D. Texas 12/3/24).
There has been much news about the deadline to comply with United States Financial Crimes Enforcement Network (“FinCEN”) rules by December 31, 2024.
As a recap, in accordance with the CTA, newly formed (or registered) corporate entities in the United States were required to submit a Beneficial Owner Report (“BOI”) to FinCEN if the corporate entity met the “Reporting Company” definition (and if it does not qualify for exemption). A Reporting Company includes corporations, limited liability companies, or other entities which are created by filing or registering a certificate of creation with a state department.
However, in light of the federal court order issued on December 3, 2024, Reporting Companies will not be required to file a BOI report with FinCEN and are not subject to liability if they fail to do so while the order remains in force. Submission of the BOI report for a Reporting Company is now being accepted on a voluntary basis.
Reporting is Optional Pending Further Action by Courts
FinCEN has issued an alert that reporting is optional following the Court Decision. A Reporting Company is not required to submit a BOI report with FinCEN while the preliminary injunction is in place. With the preliminary injunction in place, this means that a Reporting Company has two options:
1.) Voluntarily file a BOI Report with FinCEN; or
2.) Postpone filing a BOI report for now, pending further action by courts with jurisdiction over this matter.
The federal court order also stayed the impending January 1, 2025, compliance deadline for Reporting Companies created prior to January 1, 2024.
Considerations on Whether to Delay Filing
Compliance with FinCEN has created confusion and concern for Reporting Companies. In particular, if Trust has an interest in a Reporting Company, additional details must be analyzed to determine the appropriate reporting on the beneficial owners.
They delay may provide a reprieve to making such analysis, but not without risk. If you choose to delay reporting, a future decision which validates the CTA may leave little time for a reporting company to comply in a timely manner. This may create the risk of being subject to the $500 daily fine for failure to report.
In addition, if any changes are made to ownership between the date of the decision and the reactivation of the CTA, it’s possible that all changes in ownership may have to be reported. If you choose to delay reporting, it may be prudent to keep a detailed log of ownership changes, including dates, parties and ownership shares.
Contact Us For Assistance
Abelaj Law, PC is monitoring the ongoing litigation of the CTA. Please note that this federal court ruling most likely is not the affirmative final determination on the constitutionality of the CTA and further litigation is pending on this issue. Contact our experienced legal team today at 212-328-9568 to learn more.
December 2023 Bulletin: New Law
Corporate Transparency Act Creates Trap for Unwary
Starting January 1, 2024, small corporations, LLCs, and similar entities are required to report beneficial ownership information to the Treasury’s Financial Crime Enforcement Network (FinCEN). The penalty for failure to file is up to two years in prison and $10,000. The deciding factor appears to be if the entity was created by filing a document with the secretary of state or similar office. If so and no exception applies, the FinCEN filing is mandatory.
Exceptions and Trusts
The current exceptions are not-for-profit organizations and trusts which were not created by filing a document with the secretary of state. However, if your trust owns an interest in an LLC, corporation, family limited partnership or other reportable entity, then the entity must reflect the beneficial owner as the trust.
Beneficial Ownership
Determining who is a beneficial owner can be difficult. A beneficial owner is any individual who directly or indirectly exercises substantial control over the company or who owns or controls 25 percent or more of the company. Substantial control is broadly defined to include senior officers, those who have the ability to appoint or remove senior officers or a majority of the board of directors, those who have substantial influence over important decisions, and (the catch-all) those who have any other form of substantial control over the company.
Reporting Requirements
A reporting company must provide (1) its legal name and any trade name or DBA, (2) its address, (3) the jurisdiction in which it was formed or first registered, and (4) its Taxpayer Identification Number (TIN).
For each of the company’s beneficial owners, the company will need to provide the individual’s (1) legal name, (2) birthdate, (3) address, and (4) an identifying number from a driver’s license, passport, or other approved document for each individual, and an image of the document that the number is from. That’s right. They want a copy of your driver’s license or passport.
Filing Deadlines
Companies created or registered before January 1, 2024, must file by January 1, 2025. Companies created or registered after December 31, 2023, must file within 90 calendar days of formation. FinCEN will accept reports electronically beginning January 1, 2024. Final forms are still in the making.
Ongoing Reporting
This is not just a one-time reporting requirement. A company will have 30 days to report any changes to reported information—i.e., any changes in beneficial ownership. For updates, the 30 days start from when the relevant change occurs. For corrections, the 30 days start after becoming aware of—or having reason to know of—an inaccuracy in a prior report. There are no safe harbors for filing an incorrect report.
The government expects over 32 million initial reports to be filed at an estimated cost of about 22 billion dollars; and then 2 billion dollars in additional cost each year for updated reports. In my opinion, the government’s cost estimate is ridiculously optimistic because the rules are complex.
Contact Us for Assistance
If you would like help in determining if a filing is required and then filing the required report in 2024, please contact our office at 212-328-9568 or via email at assistant@abelajlaw.com.