CTA Compliance: It’s the Final Countdown for Reporting Companies

The countdown to January 1, 2025 is on for reporting companies to make a report to the Financial Crimes Enforcement Network (FinCEN). Now in the final quarter of the Corporate Transparency Act’s (“CTA” or the “Act”) inaugural year in effect, time is running out for businesses to determine whether to make an initial report of beneficial ownership information (“BOI”) or whether an exemption applies. The deadlines for Reporting Companies remain:

• January 1, 2025, for all Reporting Companies in existence as of January 1, 2024.
• 90 days after formation for Reporting Companies created on January 1, 2024, or later. (On January 1, 2025, deadline to file will be reduced to 30 days after formation.)

The reporting deadlines remain unchanged despite several Constitutional challenges in 2024. In particular, the March 1, 2024, ruling in National Small Business United v. Yellen brought significant attention to the implementation and compliance challenges surrounding CTA. In this case, a federal judge in the Northern District of Alabama ruled the Act unconstitutional because it “exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated power to be a necessary or proper means of achieving Congress’s policy goals.”¹ This led many business owners to mistakenly believe that the decision was binding on the government for all businesses across the country. However, the ruling was narrowly tailored to apply only to the approximately 75,000 member businesses and one individual member of the National Small Business United—which trades as the National Small Business Association—as of the date of the ruling. 

The government immediately appealed the ruling to the 11th Circuit Court of Appeals, which heard oral arguments in the case on September 27, 2024. Even if a decision is reached before the end of the year, there is little indication that the challenge will be resolved to change requirements before the turn of the year deadline.² In addition, at least four other challenges to the CTA’s Constitutionality have been filed in other jurisdictions—cases in Michigan,³ Texas,⁴ Maine,⁵ and Ohio.⁶

Amid the uncertainty, the law remains in effect and CTA reporting requirements continue to apply to the nearly 33 million estimated Reporting Companies not covered by the Alabama District Court’s order. As businesses grapple with the implications of the court challenges, the clock is still ticking, and understanding the intricacies of compliance is paramount.

The Act, passed in 2020 but not effective until 2024, aims to combat money laundering, terrorism financing, and other illicit financial activities facilitated by anonymous shell companies. It mandates certain entities, including corporations, limited liability companies (LLCs), and others formed by filing with a state agency (e.g., limited liability partnerships (LLPs)), to disclose beneficial ownership information to the Financial Crimes Enforcement Network (“FinCEN”), a bureau of the Treasury Department.

For businesses navigating compliance with the CTA, here are some key considerations:

1. Understand Compliance Obligations: Despite the legal challenges, Reporting Companies must remain diligent in fulfilling their compliance obligations. This includes identifying and disclosing beneficial ownership information as required by law. FinCEN recognizes the confusion and has continued to publish FAQs to its website to clarify identified issues.⁷ As of October 3, 2024, over 120 FAQs have been published.
2. Implement Robust Compliance Measures: To ensure CTA compliance, businesses should implement robust compliance measures, including establishing internal controls and procedures for collecting and reporting beneficial ownership information accurately and efficiently. Newly formed entities should consider including these provisions in formation documents. Compliance is an ongoing responsibility.
3. Seek Professional Guidance: Given the complexities surrounding compliance with CTA, businesses may benefit from seeking the professional guidance of legal, financial, and compliance experts. These professionals can provide valuable insights and assistance in navigating the new regulatory landscape, keeping you informed, and helping determine whether a Reporting Company must report or whether an exemption applies.

Uncertainty notwithstanding, it is critical to understand and navigate the intricacies of CTA compliance. While the legal landscape may continue to evolve, businesses must remain proactive in fulfilling their compliance obligations and addressing any challenges that may arise. The final countdown is on; be sure to know your BOI reporting obligations before the clock runs out on January 1, 2025. If you have questions about CTA compliance, reach out to the attorneys at Frost Law to evaluate your particular circumstances or to assist with making a report.