Florida Bar Journal

A Legal Roller Coaster: The Corporate Transparency Act

When originally enacted, millions of U.S. businesses and foreign entities registered to do business within the U.S. were impacted by the Corporate Transparency Act (CTA), which resulted in multiple federal lawsuits. Injunctions were issued back and forth. This article summarizes what the CTA required and where we are with the implementation of the law.

The CTA is a federal law passed by Congress in 2021 with an effective date of January 1, 2024. The CTA was enacted by Congress with the goal to make it more difficult to use shell companies or other ownership structures to launder money, finance terrorism, and other activities that harm U.S. national security and economic interests. The National Defense Authorization Act (NDAA) contains the CTA. The NDAA had broad bipartisan support in Congress. In fact, President Donald Trump vetoed the NDAA, but the House of Representatives voted 322 to 87 to override his veto and the Senate voted 81 to 13 to provide the first congressional override to a Trump veto.

In the CTA, Congress required that certain entities be designated as “reporting companies.” The CTA requires that reporting companies file reports containing its beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury with the purpose of safeguarding the financial system of the U.S. FinCEN promotes national security by trying to reduce money laundering.

Under the CTA, a company has to report BOI to FinCEN if it was created or registered to do business by the filing of a document (e.g., articles of incorporation or articles of organization) with a secretary of state or any similar office in the U.S. Reporting companies are discussed in greater detail below.

If a reporting company is required to file BOI and does not file, then there are significant civil and criminal penalties. A person who willfully violates BOI reporting requirements may be subject to civil penalties of up to $500 for each day that the violation continues, an amount that is adjusted annually for inflation. The criminal penalties include up to two years imprisonment, a fine of up to $10,000, or both.^[1]

Reporting Company

Under the CTA, a reporting company falls into one of two categories: it can be a domestic or foreign reporting company. A domestic reporting company is a limited liability company, corporation (C-corp or S-corp), or any other entity that was created by filing a document with any secretary of state of the 50 states or an office that is like a secretary of state (including the U.S. territories of the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, and the U.S. Virgin Islands). A foreign reporting company is formed under the laws of a foreign country but is registered to do business in any state (or territory) of the U.S. or tribal jurisdiction. Registration is accomplished by the filing of a document with a secretary of state or an office that is like a secretary of state under the laws of a U.S. state or Indian tribe, as defined in §102 of the Federally Recognized Indian Tribe List Act of 1994 (25 U.S.C. §5130).^[2] Entities not created by filing with a secretary of state (e.g., sole proprietorships and certain trusts) are not considered reporting companies. Filing a trust with a court of law to establish the court’s jurisdiction over the trust does not make the trust a reporting company.

In addition, there are 23 categories of entities exempt from the requirement to file a BOI report. The full list of 23 exemptions and their criteria can be found in the U.S. Code.^[3] The short titles of the 23 exemptions are: 1) securities reporting issuer; 2) governmental authority; 3) bank; 4) credit union; 5) depository institution holding company; 6) money services business; 7) broker or dealer in securities; 8) securities exchange or clearing agency; 9) other Exchange Act registered entity; 10) investment company or investment adviser; 11) venture capital fund adviser; 12) insurance company; 13) state-licensed insurance producer; 14) Commodity Exchange Act registered entity; 15) accounting firm; 16) public utility; 17) financial market utility; 18) pooled investment vehicle; 19) tax-exempt entity; 20) entity assisting a tax-exempt entity; 21) large operating company; 22) subsidiary of certain exempt entities; and 23) inactive entity.

Beneficial Owner

BOI reports contain information about the entity itself and two categories of individuals: beneficial owners and company applicants. “The term ‘beneficial owner’ — (A) means, with respect to an entity, an individual who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise — (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity….”^[4] An individual can be classified as a beneficial owner through substantial control, ownership interest in the entity, or both.

The reporting company is required to identify all individuals who exercise substantial control over the entity. A beneficial owner of a reporting company must be an individual. An individual is considered to exercise substantial control over a reporting company if the individual meets any of the following criteria: 1) is a senior officer of the reporting company (such as a president, CFO, general counsel, CEO, COO, or any other officer who performs like functions, but not necessarily a secretary or treasurer solely by virtue of having such position); 2) has authority to appoint or remove certain officers or a majority of the directors of the reporting company; 3) is an important decisionmaker for the reporting company; or 4) has any other form of substantial control over the reporting company.^[5] Examples of important reporting company decisions are those that affect the reporting company’s finances or structure. This includes individuals who exercise substantial control over a reporting company through an unaffiliated company. As for what is considered an ownership interest, it is generally an arrangement that establishes ownership rights in the reporting company such as shares of equity, stock, voting rights, or any other instrument, contract, or other mechanism used to establish ownership.^[6]

A couple of examples illustrating how beneficial owners are determined are as follows: The entity is a corporation that does not qualify for any of the 23 exemptions. Accordingly, it must file its BOI report. Individual A is a shareholder of the corporation who owns 100% of the corporation’s stock. He or she is the president and makes all the important decisions for the company. No one else exercises substantial control over the corporation. Consequently, Individual A is a beneficial owner of the reporting company. Individual A exercises substantial control over the company because Individual A is the president (a senior officer) of the company. Individual A is also a beneficial owner because he or she owns 25% or more of the reporting company’s ownership interests.

As another example of how to determine beneficial ownership, assume the reporting company is a limited liability company (LLC) that does not qualify for any of the 23 exemptions and must file its BOI report. Individual B is the sole owner of the reporting company. The reporting company is a manager-managed LLC. Individual C is the manager of the reporting company and makes important decisions for the reporting company. No one else owns or controls ownership interests in the reporting company or exercises substantial control over the reporting company. As such, Individual B and Individual C are both beneficial owners of the reporting company. Individual B is a beneficial owner because Individual B owns 25% or more of the reporting company’s ownership interests. Individual C is also a beneficial owner because Individual C exercises substantial control over the company as the manager of the company and makes important decisions.

A reporting company’s directors are not always considered beneficial owners. The reporting company must consider this situation on a director-by-director basis. There are exceptions to the definition of a beneficial owner. If an individual qualifies for an exception, then the individual does not need to be reported as a beneficial owner to FinCEN. The five exceptions are: 1) a minor child; 2) a nominee, intermediary, custodian, or agent (such as a tax professional) — in other words, someone who is acting on behalf of the beneficial owner; 3) an employee; 4) an inheritor (i.e., an individual who has a future interest in the reporting company); and 5) an individual who is a creditor of the reporting company.^[7] If the beneficial owner is a minor child, the reporting company may instead report information about the legal guardian or parent of the minor child.^[8] While an accountant or attorney is normally not a beneficial owner of a reporting company, the professional might be considered a beneficial owner depending on his or her role in the reporting company or the work performed. For example, a general counsel in a reporting company is classified as a “senior officer” under 31 C.F.R. §1010.380.^[9] Therefore, a general counsel in that situation would be considered a beneficial owner.

A question arises about who should be reported in the reporting company’s BOI report if there is currently litigation over the ownership of the company. An example is a married couple who owns a business that is a reporting company, who are in the middle of a divorce. The answer depends on whether an initial BOI report has been filed. If an initial BOI report has not been filed, then FinCEN advises that the reporting company reports 1) all individuals who exercise substantial control over the company; and 2) all individuals who own/control, or have a claim to ownership/control of at least 25% ownership interest in the company. On the other hand, if an initial BOI report has been filed, the reporting company must file an updated BOI report within 30 calendar days of when the litigation is resolved, if the litigation results in a change of what was previously reported.^[10]

Reporting companies are not required to use an attorney or a Certified Public Accountant to submit a BOI report to FinCEN. However, reporting companies are permitted to consult with or use the services of an attorney or accountant regarding their BOI reports.

Company Applicant

As previously stated, there is a second category of individuals whose information is included in BOI reports: company applicants. There are two categories of company applicants: 1) the “direct filer” and 2) the individual who “directs or controls the filing action.” A direct filer is the individual who filed the documents that created a domestic reporting company or first registered a foreign reporting company. The individual who “directs or controls the filing action” is the individual who was primarily responsible for directing or controlling the filing of the domestic reporting company’s creation document or the foreign reporting company’s first registration document.^[11] Frequently, a company applicant may be employed by a law firm or an entity that files articles of incorporation or articles of organization. Originally under the CTA, a company had to report its company applicants if it was a domestic reporting company created (or an entity that becomes a foreign reporting company in the U.S.) on or after January 1, 2024. In other words, a company did not have to report its company applicants if it was a domestic reporting company created (or a foreign reporting company first registered to do business in the U.S.) before January 1, 2024.^[12]

Depending upon the role of an accountant or attorney in the process of creating a U.S. entity or registering a foreign entity in the U.S., they could be considered a company applicant under the CTA. An attorney or an accountant who supervises the drafting of a reporting company’s articles of incorporation (corporation) or articles of organization (LLC) and files such documents with the secretary of state could be deemed a company applicant. Note that a reporting company can only have up to two company applicants. An attorney might request that a non-attorney or an associate directly file the articles of incorporation or articles of organization documents with the secretary of state. In such an event, the reporting company’s company applicants are the non-attorney or associate who initiated the filing and the attorney who directed the filing. The question has been asked, “If my reporting company was created in 1985, how am I supposed to know who the company applicants are to be included on the entity’s BOI report?” In such an event, the reporting company does not need to report its company applicants.^[13] Recall that if a reporting company was created or registered before January 1, 2024, the reporting company only needs to provide information about itself and its beneficial owners. Such a reporting company does not need to report its company applicants. Notably, according to FinCEN, a company applicant cannot be deleted from a BOI report. Even if the company applicant no longer has a relationship with the reporting company (e.g., the company applicant is deceased), the individual’s information would remain on the BOI report.

Sole Practitioner

A sole practitioner attorney might question if they need to file a BOI report. The answer is that it depends on how the individual’s business is organized. If the individual’s business is organized as a corporation (most frequently as a professional association, or P.A.), limited liability company, or other entity created (or, if a foreign entity, registered to do business) in the U.S. by filing a document with a secretary of state or similar office, then the sole practitioner attorney’s business is a reporting company, unless a reporting exemption applies. If the sole practitioner operates as a sole proprietorship, then generally a sole practitioner attorney does not need to file a BOI report. A sole proprietorship filing a document with a government agency for another reason such as to obtain 1) an Internal Revenue Service (IRS) employer identification number (EIN) or tax I.D. number; 2) a fictitious name for their business; or 3) a professional or occupational license, does not make it a reporting company by virtue of filing such a document. In regard to a law firm, if it filed a document with the secretary of state or similar office to be created or registered, it is a reporting company that needs to file a BOI report, unless an exemption applies (such as the large operating company exemption above). Currently, there is no exemption to the BOI report filing requirement specifically for law firms.

Selected Additional Considerations

One BOI report cannot be filed by a parent company for its multiple companies. Any reporting company that is not exempt generally must file its own BOI report.

A reporting company is required to have a Taxpayer Identification Number (TIN) when filing its BOI report. If the reporting company is a new entity, it might not have a TIN for the company. In such a situation, the company could file for an EIN using online IRS Form SS-4. The reporting company should receive the EIN within minutes. Keep in mind that if a foreign person does not have an individual TIN, a paper filing is required to obtain an EIN. They should be prepared for this to take a period of time, which, according to the IRS, could be six to eight weeks.^[14]

If there are changes in the information that was provided in the initial BOI report, then the reporting company is required to file an update with FinCEN. Examples of such changes include items such as: 1) a change in beneficial owners; 2) registering a new business name; 3) a change to a beneficial owner’s address; 4) a change to a beneficial owner’s name; or 5) a change to a unique identifying number previously provided to FinCEN. If a reporting company loses its exemption, it is required to file an updated BOI report with FinCEN with the company’s current BOI when it determines it no longer qualifies for an exemption.^[15] If a reporting company later obtains exempt status under the CTA, then it will need to file an updated BOI report that identifies the entity and checks the new exemption box.^[16] This is compared to a reporting company that was always exempt, in which case it does not need to report it is exempt.

One should not assume that because a reporting company is a limited liability entity, individuals will not be liable for violations. Under the CTA, both individuals and entities can be held civilly and criminally liable for willful violations. Examples of when an individual might have liability would include 1) someone who files false information with FinCEN; 2) a provider of false information; 3) someone who causes the failure to report complete or updated BOI; or 4) a senior officer of the reporting company at the time of the failure to report complete or updated BOI.^[17]

Filing and Use of Information

A BOI report can be filed electronically with FinCEN through a secure filing system.^[18] Financial institutions can access the BOI when the reporting company consents to have this information released in certain circumstances. Officials at the federal, state, local, and tribal levels may also have access to BOI. Certain foreign officials need to submit a request through a U.S. federal government agency for authorized activities, which must be related to national security, intelligence, and law enforcement.^[19]

Except as authorized by CTA, it is unlawful for any person to knowingly disclose or use BOI obtained through FinCEN reporting or disclosure. Any person who violates this is subject to:

(i) civil penalty of not more than $500 for each day that the violation continues or has not been remedied; and (ii)(I) shall be fined not more than $250,000, or imprisoned for not more than 5 years, or both; or (II) while violating another law of the [U.S.] or as part of a pattern of any illegal activity involving more than $100,000 in a 12-month period, shall be fined not more than $500,000, imprisoned for not more than 10 years, or both….^[20]

According to FinCEN, BOI provided to FinCEN through reporting will be stored in a secure, non-public database using rigorous information security methods and controls that they state is typically used in the federal government to protect non-classified yet sensitive information systems at the highest security level.

Unfortunately, with a new law comes the potential for scams. There have been reports of correspondence referring to an “important compliance notice” from FinCEN regarding the CTA and other similar types of communications. A notice of that nature is fraudulent. According to FinCEN, it does not send unsolicited requests. Individuals and reporting companies should be vigilant to not respond to these fraudulent messages, or use any links, URLs, or QR codes within them.

Constitutionality of the CTA and Developments

• Litigation — The question regarding the constitutionality of the CTA arose early and has prompted litigation. On March 1, 2024, a federal district court (U.S. District Court for the Northern District of Alabama, Northeastern Division) issued an opinion holding in part that the CTA is unconstitutional.^[21] The opinion stated in pertinent part:

For the reasons articulated in its March 1, 2024, opinion on the parties’ cross-motions for summary judgment, (Doc. 51), the Court FINDS that the Plaintiffs are entitled to summary judgment as a matter of law, and GRANTS the Plaintiffs’ request for relief as follows: (1) The Court ENTERS this final declaratory judgment: as discussed in the Court’s opinion, the Corporate Transparency Act is unconstitutional because it exceeds the Constitution’s limits on Congress’ power. The Court makes no ruling as to the constitutionality of the Act on any other grounds. (2) The Defendants, along with any other agency or employee acting on behalf of the United States, are PERMANENTLY ENJOINED from enforcing the Corporate Transparency Act against the Plaintiffs. (3) The Court will hear the parties’ arguments concerning the allocation and amount of costs on a date to be determined. DONE and ORDERED March 1, 2024.^[22]

In turn, on March 4, 2024, FinCEN issued its “Notice Regarding National Small Business United v. Yellen….” In summary, the notice acknowledged the judgment and that FinCEN is not currently enforcing the CTA against the plaintiffs in that action.^[23] On March 11, 2024, FinCEN issued an updated notice that stated in pertinent part, “Other than the particular individuals and entities subject to the court’s injunction,…reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations….”^[24]

On December 3, 2024, a nationwide preliminary injunction enjoining the CTA was entered by a federal court in Texas in Texas Top Cop Shop, Inc., et al. v. Garland, et al., Case No. 4:24-cv-00478 (E.D. Tex.).^[25] The injunction order provides in pertinent part that:

[T]he CTA, 31 U.S.C. §5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under §705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.^[26]

In response, FinCEN published an alert on its website acknowledging the order and stating in part the following:

While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.^[27]

The Department of Justice, on behalf of the Department of the Treasury, filed a notice of appeal on December 5, 2024.^[28] On January 23, 2025, the Supreme Court granted a stay pending appeal of that order enjoining the government from enforcing the CTA.^[29]

Also, on January 7, 2025, in Smith v. U.S. Department of the Treasury, No. 6:24–cv–00336, 2025 WL 41924 (E.D. Tex. Jan. 7, 2025), the U.S. District Court for the Eastern District of Texas, Tyler Division, issued a similar preliminary order that prevented the government from enforcing the CTA against the plaintiffs and stayed the effective date of the implementing regulation during the pendency of that litigation.^[30] The government appealed and sought a stay of this order, which the district court granted on February 18, 2025. The district court’s stay of its order lifted the last remaining nationwide order that had prevented FinCEN from implementing and enforcing the CTA and §1010.380.^[31]

FinCEN and Treasury Announcements: The Interim Final Rule

Recognizing that the prior reporting deadlines for many companies had already passed, FinCEN extended the reporting deadlines for most reporting companies until March 21, 2025.^[32]

On March 2, 2025, the U.S. Treasury announced the suspension of enforcement of the CTA against U.S. citizens, domestic reporting companies, and their beneficial owners, and the Treasury further announced its intent to engage in a rulemaking to narrow the reporting rule to foreign reporting companies only.^[33]

On March 26, 2025, FinCEN published an interim final rule that revised the definition of “reporting company” in its regulations implementing the CTA. In summary, the interim final rule exempts: 1) “all domestic reporting companies, and their beneficial owners, from the requirement to file initial BOI reports, or to update or correct previously filed BOI reports, by excluding domestic companies from the scope of the term ‘reporting company;’” and 2) “foreign reporting companies, and their U.S. person beneficial owners, from the requirement to provide the BOI of any U.S. persons who are beneficial owners of the foreign reporting company….Foreign reporting companies that only have beneficial owners that are U.S. persons will be exempt from the requirement to report any beneficial owners.”^[34]

Under the interim final rule, effective March 26, 2025:

[F]oreign entities that meet the new definition of a ‘reporting company’ and do not qualify for an exemption from the reporting requirements are required to file with FinCEN under the following new deadlines: (i) Reporting companies registered to do business in the [U.S.] before March 26, 2025, must file BOI reports by April 25, 2025; and (ii) reporting companies registered to do business in the [U.S.] on or after March 26, 2025, have 30 calendar days to file an initial BOI report…of the earlier of the date on which it receives actual notice that it has been registered to do business or the date on which a secretary of state or similar office first provides public notice, such as through a publicly accessible registry, that the reporting company has been registered to do business.^[35]

FinCEN is now exempting domestic reporting companies from BOI requirements because it believes it is:

[c]onsistent with the exemptive authority provided in the Corporate Transparency Act and the direction of the President, the Secretary of the Treasury (Secretary) has reassessed the balance between the usefulness of collecting BOI and the regulatory burdens imposed by FinCEN’s BOI reporting requirements.

The Secretary has assessed that exempting U.S. businesses would ensure that these regulations are appropriately tailored to advance the public interest, considering the burdens imposed by the regulations without sufficient benefits.^[36]

Required Information Under FinCEN’s Interim Final Rule

Under FinCEN’s Interim Final Rule, if a reporting company is required to file a BOI report, then certain information is required to be provided. In summary, the reporting company must report: 1) the reporting company’s full legal name; 2) any fictitious name or D/B/A name of the reporting company; 3) the current street address of its principal place of business if that address is in the U.S., or, for reporting companies whose principal place of business is outside the U.S., the current address from which the company conducts business in the U.S.; 4) the foreign jurisdiction of formation of the reporting company; 5) the state or tribal jurisdiction where the reporting company first registers; and 6) the IRS taxpayer identification number (TIN) (including an EIN) of the reporting company, or when a reporting company has not been issued a TIN, a tax identification number issued by a foreign jurisdiction and the name of such jurisdiction.^[37]

Under the CTA, a reporting company must provide each beneficial owner’s full legal name, date of birth, residential street address, a unique identifying number, the issuing jurisdiction and image of one of the following identification documents that are acceptable according to the BOI reporting requirements: 1) a non-expired U.S. driver’s license (including any driver’s licenses issued by a state, commonwealth, territory, or possession of the U.S.); 2) a non-expired identification document issued by a U.S. state or local government, or Indian Tribe; 3) a non-expired passport issued by the U.S. government; or 4) a non-expired passport issued by a foreign government (only when an individual does not have one of the other three forms of identification listed above).^[38] However, keep in mind that according to FinCEN, “reporting companies do not need to report BOI of any U.S. persons, and U.S. persons are exempt from having to provide BOI with respect to any reporting company for which they are a beneficial owner.”^[39]

Remember, if a reporting company was created or registered prior to January 1, 2024, the reporting company does not need to report its company applicants, but does need to report its beneficial owners. When a reporting company must provide information about its company applicants, it must provide each company applicant’s full legal name, date of birth, the street address of the company applicant’s business, the unique identifying number, and the issuing jurisdiction and image of one of the acceptable identification documents listed above. A reporting company cannot report its P.O. box as its current address. The reporting company must report a street address. A FinCEN identifier is a unique I.D. number issued by FinCEN (upon request) after an individual or a reporting company provides certain required information. FinCEN identifiers may be reported instead of certain required information about beneficial owners or company applicants.^[40]

Deadlines to File Updates to BOI

An updated BOI report is required within 30 days after any change in previously reported required data about the reporting company or its beneficial owners (not about company applicants).^[41] If a reporting company (that is required to report to FinCEN) does not file its initial BOI report or fails to update or correct the required information, there is a statutory safe harbor provision. It generally provides that if a person corrects a mistake or omission within 90 days of the deadline for the original BOI report, the person may avoid being penalized. However, the person could face civil and criminal penalties if the person disregards their BOI reporting obligations.^[42] The duty to file a BOI report is not required to be reported every year unless there are changes in the information reported that need to be submitted to FinCEN as an amendment or correction. Otherwise, there is no annual BOI report requirement.

Conclusion

As of the date of submission of this article, FinCEN is accepting comments on the interim final rule and states it intends to finalize the rule this year.^[43] According to the interim final rule, comments may be submitted through the Federal E-Rulemaking Portal and by mail.^[44]

The CTA is important to nonexempt foreign reporting companies because the consequences for non-compliance are significant. Indeed, failing to file a BOI report with FinCEN on time may result in a fine of up to $500 for each day (adjusted annually for inflation) that the violation continues. A willful failure to file can be punished as a felony. As of the date of submission of this article, the CTA has not been repealed. Accordingly, there is a possibility that the current administration or a future administration could request that domestic reporting companies need to file BOI reports again. All matters mentioned in this article are subject to change based upon legal developments including, without limitation, FinCEN issuing a final rule, or Congress amending or repealing the CTA.

This column is submitted on behalf of the Business Law Section, Manny Farach, chair, and Daniel Etlinger and Kathleen L. DiSanto, editors.