On January 1, 2024, the Financial Crimes Enforcement Network (“FinCEN”) enacted a new Federal law that requires compliance by closely held entities in 2024: the Corporate Transparency Act. The Act requires all foreign and domestic corporations, LLCs, limited partnerships, and other entities created through a government filing (subject to certain exemptions), to identify and provide personal information for key personnel—including any individual who owns a 25% or greater ownership interest in, or who exercises substantial control over, the company — by filing a beneficial ownership information (“BOI”) report with FinCEN. Existing companies have until January 1, 2025, to file an initial BOI report with FinCEN, but new companies must report within 90 days of formation (and starting in 2025, new companies will have only 30 days to report). Moreover, any changes in previously reported beneficial ownership information must be reported within 30 days of the change.
The Act provides an exemption from filing a BOI report for various entities including governmental authorities, money service businesses, accounting firms, public utilities firms, insurance companies, investment companies, 501(c) tax-exempt entities, large operating companies that have more than twenty full time employees in the U.S., and inactive entities. To be considered inactive, an entity must meet the following six requirements: (1) the entity was in existence on or before January 1, 2020; (2) the entity is not engaged in active business; (3) the entity is not owned by someone who is not a U.S. resident or citizen; (4) the entity has not experienced a change in ownership in the preceding 12-month period; (5) the entity has not sent or received any funds larger than $1,000.00 in the preceding 12-month period; and (6) the entity does not hold any assets, whether in the U.S. or abroad, including any ownership interest in any corporation, LLC, or other similar entity.
As a result of a recent federal Court case, National Small Business United, d/b/a, the National Small Business Association, et al. v. Yellen et al., many questions have arisen regarding the Act. In National Small Business United, the U.S. District Court for the Northern District of Alabama ruled that the Act was unconstitutional because the legislation cannot be justified as an exercise of Congress’ enumerated powers. The Court enjoined the government from applying the Act to the plaintiffs in the case specifically, but because no national injunction is in effect, parties not involved in this specific litigation should continue to comply with the Act while the case proceeds through the legal system.
We are available to advise you regarding your entity’s reporting obligations, and to assist with the required reporting. If you are the owner of a closely held entity, please contact Laura Ross at (720) 974-9423 or lross@hn-colaw.com to schedule a time to discuss your new compliance obligations.
