BY KAITLYN E. MATTOX‚ KATIE L. KALKOWSKI & HANNAH FISCHER FREY, BAIRD HOLM LLP THE CORPORATE TRANSPARENCY ACT (CTA) WENT INTO EFFECT Jan. 1, 20241 and is designed to combat tax fraud, money laundering, and other illicit activities that may otherwise be hidden by anonymous company ownership.2 The legislation requires most entities formed or doing business in the United States, called “reporting companies” for purposes of the CTA, to report Beneficial Ownership Information (BOI) of the company and disclose information about who created or registered the business to the U.S. Department of Treasury Financial Crimes Enforcement Network (FinCEN).3 FinCEN has estimated that the CTA will apply to 32.6 million reporting companies, with 5 million additional reporting companies being formed annually.4 Thus, although the CTA provides 23 exemptions to the reporting requirements, the majority of businesses, especially small businesses, will be required to disclose information regarding the company and people who have substantial control of the company.5 The constitutionality of the CTA is being challenged in several jurisdictions. However, these challenges are unlikely to result in widespread, substantive modifications to the BOI reporting requirements prior to 2024 year-end filing deadlines. Current Year-End Deadlines The CTA mandates that all reporting companies formed or registered to do business prior to Jan. 1, 2024, must file their initial BOI report by Jan. 1, 2025. Newly formed entities currently have 90 days from receiving notice of formation to file their BOI reports. That deadline is set to change to 30 days beginning Jan. 1, 2025. If any changes in beneficial ownership occur (e.g., the appointment or removal of a senior officer, changes to a beneficial owner’s name or address, etc.), reporting companies must update their BOI report to reflect those changes within 30 days. Congressional Action to Extend or Repeal In December 2023, the U.S. House of Representatives passed a bill to extend the deadline for reporting BOI.6 The bill would extend the reporting deadline for entities existing prior to Jan. 1, 2024, to Jan. 1, 2026, giving them an additional year to comply with the CTA’s filing requirements. It would also maintain the 90-day compliance period for newly formed entities indefinitely and alter the 30-day period for reporting changes to BOI to 90 days. The bill has been in the U.S. Senate’s Committee on Banking, Housing, and Urban Affairs since Dec. 13, 2023.7 It is still unclear whether this bill will be passed and extend the filing deadlines, but given the lack of congressional action since December, it seems unlikely. Reporting companies should be prepared to comply with the deadlines as they currently stand until instructed otherwise. Additionally, two bills have been introduced in the House of Representatives and Senate to repeal the CTA entirely.8 However, Congress has not acted on either of these bills since they were introduced on April 29, 2024, and May 9, 2024, respectively. Challenges to the CTA A. National Small Business Association v. Yellen In November 2022, a lawsuit challenging the constitutionality of the CTA was filed in the District Court of Northern Alabama by the National Small Business Association (NSBA) against Secretary of the Treasury Janet Yellen.9 The complaint alleged that in enacting the CTA, Congress exceeded the constitutional limits of its power, therefore infringing on state sovereignty. In addition, the complaint alleged that the CTA violates rights of due process, privacy, freedom from government intrusion, and free speech. In March of this year, the District Court of Northern Alabama ruled that the CTA, as currently written, exceeds Congress’ power to regulate interstate commerce. This is because the legislation is enforced on all non-exempt entities created by filing official documents with a secretary of state or similar office, regardless of those entities’ impact on interstate commerce.10 Likewise, the court found no justification or THE CORPORATE TRANSPARENCY ACT WHY REPORTING COMPANIES SHOULDN’T WAIT TO FILE IN THE WAKE OF CTA CHALLENGES 18 Nebraska CPA
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