Everything You Need to Know About The Corporate Transparency Act in 2024 - 2025
What to Know Right NOW
- As of Dec 3, 2024 there is a nationwide injunction suspending enforcement of the Corporate Transparency Act (CTA). The U.S. District Court for the Eastern District of Texas ruled that the CTA is likely unconstitutional.
- The Beneficial Ownership Information (BOI) Reporting Rule that requires filing by Jan 1, 2025 is now suspended.
- An appeal is expected though the incoming administration is historically opposed to the CTA.
- All US businesses should stay aware of developments regarding the CTA in 2025, and be prepared to file if the suspension is successfully appealed
GET UP TO SPEED ON THE CORPORATE TRANSPARENCY ACT
The Corporate Transparency Act (CTA) legally requires small and medium-sized US-businesses to disclose their beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). The goal of the CTA is to create a federal database of beneficial ownership information in order to combat money-laundering, financing of terrorism, and tax evasion. Failure to report would make 32.6 million business owners liable for civil penalties of not more than $500 for each day that the violation continues and criminal penalties of imprisonment of up to two years and fines of up to $10,000. On Dec. 3, 2024, the United States District Court for the Eastern District of Texas filed a nationwide preliminary injunction to block enforcement of the Corporate Transparency Act. The Texas Court found that forcing reporting companies to comply with the CTA substantially threatens their constitutional rights, and enjoined the federal government from enforcing the CTA until further order of the Court.
A Brief History of the Corporate Transparency Act
Representative Maloney introduced the Corporate Transparency Act in 2019 as federal legislation providing for the collection by FinCEN of beneficial ownership information (BOI) for reporting companies. The 2019 Transparency Proposal removed the primary responsibility for collecting BOI from the states. In 2020, the Corporate Transparency Act became a part of legislation to enact the National Defense Authorization Act (NDAA), but President Trump vetoed the NDAA before leaving office on December 20, 2020. Nevertheless, the National Defense Authorization Act for Fiscal Year 2021 became law under President Biden with Congress’ override on January 1, 2021.
The Corporate Transparency Act represents the culmination of more than a decade of congressional efforts to implement beneficial ownership reporting for business entities. It was officially implemented in 2023, with required BOI reporting deadlines by January 1, 2025.
On December 3, 2024, Judge Amos Mazzant of The U.S. District Court for the Eastern District of Texas Court ruled that the BOI reporting “is likely unconstitutional as outside of Congress’s power.“
The court ruling means that:
- The CTA, 31 U.S.C. § 5336, is legally forbidden by order of the court
- The CTA, 31 C.F.R. 1010.380, which would allow enforcement of the BOI reporting rule is forbidden by order of the court
- The compliance deadline of Jan 1, 2025 in the CTA is on hold until further notice from the court
- Bottom Line: the CTA may not be enforced by law and the BOI reporting rule is temporarily suspended
THE ROAD AHEAD FOR THE CORPORATE TRANSPARENCY ACT
FinCEN will likely appeal the Texas Court ruling. However, under the second Trump administration, there is speculation that President Trump’s previous veto of the Corporate Transparency Act suggests the CTA may remain in litigation. For the time being, reporting companies do not need to comply with the Corporate Transparency Act or BOI reporting deadlines. That said, it’s important to remember that the CTA has been enacted as law and the court’s ruling only temporarily halts enforcement while the case proceeds. In 2025, business owners should watch for the court’s final determination of the CTA’s constitutionality. If the CTA is ruled constitutional, reporting companies will need to submit their BOI reporting.
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