The Corporate Transparency Act (CTA) is a new federal law that took effect on January 1, 2024. The law aims to curtail money laundering and other financial crimes, including bad actors concealing illicit activities through anonymous shell companies. But the CTA places a heavy burden on small business owners.
The law imposes significant compliance costs, disproportionately impacting small businesses. The Financial Crimes Enforcement Network (FinCEN) estimates the 2024 compliance costs could reach $21.7 billion, largely borne by smaller companies. Compliance with the CTA may also divert small business owners’ attention from core operational activities. The time and effort required to gather and verify beneficial ownership information, update corporate records, and ensure compliance with regulatory deadlines could detract from strategic business initiatives and growth opportunities.
The CTA is problematic because the reporting requirements presume that small business owners establish their businesses for nefarious purposes. And the beneficial ownership information being collected goes far beyond what states require for business filings.
Given that 90 percent of printing companies meet the definition of a “small business” as defined by the U.S. Small Business Administration (SBA), this is a critical law to understand. But many small business owners are unfamiliar with the CTA and its reporting obligations. Although filing under the CTA began at the start of this year, only a few million businesses have registered, while an estimated 28 million covered small businesses have yet to file. Absent a delay, millions of law-abiding citizens will be at risk of steep fines and criminal penalties at the end of this year.
What is the Corporate Transparency Act?
Congress enacted the CTA as part of the Anti-Money Laundering Act of 2020, which was part of the FY2021 National Defense Authorization Act (NDAA). FinCEN, a bureau within the U.S. Department of Treasury, subsequently issued implementing regulations under the CTA, which began on January 1, 2024.
Intended to help prevent and combat money laundering, terrorist financing, corruption, and tax fraud, the CTA requires most U.S. based companies to report information regarding their “beneficial owners” to FinCEN through its Beneficial Ownership Secure System (BOSS). A “beneficial owner” is defined as any individual who directly or indirectly exercises “substantial control” over the reporting company, or who directly or indirectly owns or controls 25 percent or more of the “ownership interests” of the reporting company.
For most eligible businesses, the filing deadline is January 1, 2025. Those who fail to file by this deadline or fail to update this information if needed could face up to two years imprisonment and fines up to $10,000, in addition to civil penalties of up to $500 for each day that the violation continues.
Covered Businesses
Certain businesses, referred to by FinCEN as “reporting companies,” will be required to report beneficial ownership information (BOI) to FinCEN. The CTA requires S-corporations, corporations, limited liability companies, partnerships, and other similar entities, that register or are registered to conduct business in the United States with 20 or fewer employees and $5 million or less in gross annual revenues to file a BOI report. Many print service providers fall into this category and will be required to file a BOI report.
Exemptions
The CTA lists 23 categories of entities that are exempt from reporting. View the list of exemptions here. Business entities that do not fall within the scope of the reporting requirements include sole proprietorships, some general partnerships, foreign entities not registered to do business in the U.S., unincorporated associations, and wealth planning trusts.
There is also an exemption for “large operating companies” defined as a business that (1) employs more than 20 full-time employees in the U.S., (2) has an operating presence at a physical office within the U.S., and (3) has filed a federal income tax or information return in the U.S. for the previous year demonstrating more than $5 million in gross receipts or sales.
Required Information to Report
The reporting company must first indicate the type of report being submitted (e.g., initial report, correction of a prior report, or update to a prior report). Then, each covered business must report the following pieces of information about the business:
- The legal name of the company and any trade (d/b/a) name it conducts business under,
- The current street address of its principal place of business. If the principal place of business is not in the U.S., then the company will report the address from which it conducts business in the U.S.,
- The jurisdiction of formation, and
- Taxpayer identification number (EIN/SSN/ITIN, as appropriate).
Reporting companies must also provide the following information for each beneficial owner:
- The individual’s legal name, date of birth and residential street address,
- A unique identifying number from an acceptable identification document (e.g., driver’s license, state ID, or passport),
- The name of the state or jurisdiction that issued the acceptable identification document, and
- An image of the acceptable identification document.
Timeline for Reporting
Reporting companies have a limited time to file their initial BOI reports:
- For qualifying reporting companies established before the effective date of January 1, 2024, the filing deadline is January 1, 2025.
- Those created between January 1, 2024, and January 1, 2025, will have 90 days from either the actual notice of formation or public announcement, whichever comes first, to file.
- Businesses established on or after January 1, 2025, will have 30 days from notification or public announcement of their formation to submit their first report to FinCEN.
- Businesses must submit any corrections or updates to previously filed information within 30 days.
While the CTA does not require businesses to submit annual reports, the initial filing period may not be the only time you will be required to submit information. For example, if a beneficial owner changes their address, legally changes their name due to marriage or divorce, or obtains a new driver's license, an update to the BOI report is required. There is a 30-day window to update the BOI report beginning when a company applicant knows or would have good reason to know of any reportable discrepancies from what is already on file.
How to Report
Reporting companies must submit BOI reports electronically through FinCEN’s BOSS platform. Consulting a knowledgeable advisor, such as an attorney or an accountant, when filing the initial and/or updated reports is strongly recommended.
Disclosure of Information
The Access Rule states beneficial ownership information may be provided to law enforcement, financial institutions, and U.S. Department of Treasury officers and employees who require access to perform their job duties. Authorized recipients are subject to security and confidentiality protocols.
Judicial Activity
On March 1, 2024, a U.S. District Court for the Northern District of Alabama in National Small Business Association (NSBA) v. Yellen ruled that the CTA is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers. The plaintiffs in this case sued in November 2022, seeking a permanent injunction against the implementation of the CTA and FinCEN’s reporting rules.
The Court did not issue a nationwide injunction halting the CTA’s enforcement against all reporting companies, meaning the CTA remains in effect for covered entities other than the named plaintiffs and NSBA members.
On March 11, 2024, the U.S. Department of the Treasury appealed the court’s ruling to the U.S. Court of Appeals for the Eleventh Circuit. Both the Treasury and the NSBA have filed their appellate briefs and the case is pending.
Congressional Activity
On May 9, 2024, Senator Tommy Tuberville (R-AL) introduced the Repealing Big Brother Overreach Act (SB 4297). The bill is designed to repeal the CTA and is currently in the Senate Committee on Banking, Housing and Urban Affairs. An identical bill (HR 8147) was introduced in the House by Representative Warren Davidson (R-OH-08) and referred to the House Committee on Financial Services. Both bills have yet to gain traction, but time will tell whether it can gain the bipartisan support needed to become law.
In the House, on April 11, 2024, Representative Zachary Nunn (R-IA-3) introduced the Small Business Red Tape Relief Act (HB 7963) to provide relief to entities covered by the CTA and requiring FinCEN to report to Congress on a quarterly basis the number of BOI initial and updated reports filed.
Additionally, on August 2, 2024, Rep. Nunn introduced HR 9278, bipartisan legislation that would delay the CTA filing deadline by one year. Both HB 7963 and HR 9278 were referred to the House Committee on Financial Services.
Coalition Efforts
PRINTING United Alliance and like-minded organizations representing millions of small businesses strongly support amending the FY2025 National Defense Authorization Act (NDAA) to delay by one year the CTA filing deadline. In a coalition letter dated July 25, 2024, we urged the leadership of the Senate Committee on Banking to include amendments to the FY2025 NDAA.
The amendments, sponsored by Senators Tim Scott (R-SC) and James Lankford (R-OK), would provide the business community additional time to learn about the CTA’s new reporting requirements and the onerous penalties resulting if they fail to comply. It would also allow time for the on-going legal challenge to work its way through the courts while restoring Congress’s original intent to give covered entities a full two years to comply with the statute’s reporting requirements. In its rulemaking, FinCEN shortened this two-year deadline and gave existing entities just one year to comply.
At the end of August 2024, the Alliance joined a second coalition letter in support of Rep. Nunn’s legislation which would delay the CTA year-end filing deadline by one year.
Final Thoughts
While this new law is intended to provide law enforcement with beneficial ownership information for the purpose of detecting, preventing and punishing terrorism, money laundering and other misconduct accomplished through business entities, it places a significant burden on small businesses. It’s not clear that the CTA is a workable solution to the problems it seeks to remedy.
The Government Affairs team will continue to advocate for a delay in the CTA filing deadline, which for most eligible businesses is January 1, 2025. We will monitor the CTA litigation, the legislation proposed in the House and Senate, and the future of the CTA. To learn more, please visit FinCEN’s website resources: FAQs (Frequently Asked Questions) and Small Entity Compliance Guide.
In this article, Stephanie Buka, Government Affairs Coordinator, PRINTING United Alliance, addresses the Corporate Transparency Act. More information can be found at Business Excellence-Legislation or reach out to Steph should you have additional questions specific to how these issues may affect your business: sbuka@printing.org.
To become a member of the Alliance and learn more about how our subject matter experts can assist your company with services and resources such as those mentioned in this article, please contact the Alliance membership team: 888-385-3588 / membership@printing.org.