UPDATE: On December 7, 2024 FinCEN issued the following ALERT UPDATE regarding enforcement of the Corporate Transparency Act:

“On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction that: (1) enjoins the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024.

Texas Top Cop Shop is only one of several cases in which plaintiffs have challenged the CTA that are pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.

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.”

CONTINUED MONITORING IS ADVISED. If you choose not to submit a beneficial ownership information (“BOI”) report at this time, it is recommended that the required information be compiled internally in case the injunction is lifted, requiring compliance in the future.

Corporate Transparency Act Compliance – Obtain your FinCEN ID NOW

The Corporate Transparency Act (“Transparency Act”) is a new federal law that went into effect on January 1, 2024.  It applies to most privately held companies (each, a “reporting company”)[i], especially those typically used for commercial real estate investment and most small businesses. There are exceptions but they are limited. Failure to comply exposes you to fines and criminal liability, including possible jail time.

            The Transparency Act is administered and enforced by the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Its aim is to curtail money laundering and other illegal activities.

Beneficial Owners

            To comply, each reporting company must file with FinCEN a written disclosure of all “beneficial owners” having a direct or indirect interest in the company.  Beneficial owners are those individuals who (a) exercise “substantial control” over the entity, or (b) own or control at least 25% of the ownership interests in the entity.

Substantial control

“Substantial control” is very broadly defined to include any individual who (i) serves as senior officer of a reporting company; (ii) has authority over the appointment or removal of any senior officer or a majority of the board of directors (or similar body) of a reporting company; (iii) directs, determines, or has substantial influence over important decisions made by the reporting company (functional or de facto authority); or (iv) has any other form of substantial control over the reporting company. Examples of individuals who are deemed to exercise “substantial control” include but are not limited to: c-suite officers of a corporation including any individual who holds the position of general counsel; managers of a limited liability company, trustees of a trust, and general partners of a limited partnership, to name a few

Beneficial Ownership Information Report

Each reporting company is required to timely file with FinCEN a Beneficial Ownership Information Report (BOI Report) containing all necessary information. A parent company is not authorized to combine affiliated companies into a single BOI Report. Each and every reporting company must file a separate BOI Report. 

In light of the legal exposure to fines and jail time, it is prudent to overreport rather than underreport to assure full compliance with the Transparency Act.

Deadline for Reporting:

For reporting companies formed prior to January 1, 2024, the reporting deadline is December 31, 2024. For reporting companies formed on or after January 1, 2024 but prior to January 1, 2025, the reporting deadline is ninety (90) days after formation. For reporting companies formed on or after January 1, 2025, the reporting deadline is thirty (30) days after formation.  A BOI Report needs to be filed only once except that if, after filing any initial BOI Report, any of the information in the BOI Report changes, the BOI Report must be timely updated.

BOI Report Contents:

Each BOI Report must be filed with FinCEN electronically using FinCENs’ Beneficial Ownership Secure System (“BOSS”). The BOI Report must include precise information about the reporting company and its beneficial owners. The information for each reporting company must include, without limitation, the following: the full legal name and any alternate or assumed name of the reporting company; its jurisdiction of formation; current U.S. address; Tax ID number; and a description and copy of an acceptable identifying document. 

IN ADDITION, each BOI Report must include detailed Beneficial Owner Information including (A) the individual’s last name (or if the beneficial owner is an entity, the entity’s legal name); first name, date of birth, current residence address, a description and copy of an acceptable form of identification, which may include the photo page of a current passport, state issued driver’s license (front and back) or other government issued photo ID (front and back); or (B) the beneficial owner’s FinCEN Identifier (“FinCEN ID).  

FinCEN Identifier (FinCEN ID):

It is common for investors to be a beneficial owner of more than one reporting company. Since identifying information for each beneficial owner must be included in each BOI Report, repeatedly providing your detailed Beneficial Owner Information for successive BOI Reports may prove cumbersome and redundant. You may also be concerned about providing your Beneficial Owner Information to others. There is a solution.

Instead of repeatedly providing all required Beneficial Owner Information and documentation to each reporting company for each BOI Report, you can file it once with FinCEN and obtain a FinCEN Identifier, which is a unique 12-digit number issued by FinCEN which matches your Beneficial Owner Information to your information in the FinCEN database. The FinCEN database is designed to be confidential and secure, with highly restricted access. Thereafter, whenever a BOI Report is required to be filed, you may simply provide your FinCEN Identifier in lieu of detailed personal identifying information and documentation.

Obtaining a FinCEN Identifier is easy. Go to: http://fincenid.fincen.gov  then click on the Sign In or Create an Account button and follow the instructions.  Alternatively, simply Google: How to obtain FinCEN ID and then follow the step-by-step instructions.

Don’t delay. The clock is ticking.

[i] As of March 11, 2024, FinCEN has posted an Updated Notice concerning a lawsuit entitled National Small Business Untied v. Yellen, No. 5:22-cv-01448 (N.D. Ala.) where a federal district court entered a final declaratory judgment concluding that the Corporate Transparency Act exceeds the Constitutions’ limits on the powers of Congress and enjoining the Department of Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs. The Justice Department, on behalf of the Department of Treasury filed a Notice of Appeal on March 11, 2024. While the litigation is ongoing, FinCEN will continue to implement the Corporate Transparency Act as required by Congress, while complying with the courts order. For more information go to:  https://www.fincen.gov/news/news-releases/updated-notice-regarding-national-small-business-united-v-yellen-no-522-cv-01448