Is Your Small Business in Compliance with the Corporate Transparency Act? (with Melissa Doumbia of Redpath and Company)

Updated March 11, 2024 - In a decision issued March 1, 2024, U.S. District Court Judge Liles Burke ruled that the Corporate Transparency Act (CTA) is unconstitutional. Finding that the law “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’ policy goals," Judge Burke issued a summary judgment in favor of the plaintiff, the National Small Business Association, preventing the enforcement of the CTA against this group. It is important to note that the court’s ruling applies only to the NSBA and its members. The Department of Justice is expected to appeal this decision and to request a stay, or temporary pause, of the ruling while the case proceeds through the courts.

The Financial Crimes Enforcement Unit of the U.S. Department of Treasury has made clear that the law still stands for all other reporting companies and will continue to be enforced. At this time, all reporting obligations and associated timelines remain in effect. Entities formed on or after January 1, 2024, which do not qualify for one of the 23 exemption reasons, must make their initial report within 90 days of formation. Reporting entities formed prior to January 1, 2024, have until January 1, 2025 to submit their initial report. All reporting companies must file updated reports within 30 days of any changes to or for their beneficial owners.

We will continue to monitor this case as it progresses. If you have any questions or concerns regarding the CTA and your reporting requirements, you can reach out to a Redpath and Company advisor here. 

Original Summary from December 11, 2023:

Melissa Doumbia, manager at Redpath and Company, joined the Mind the GAAP podcast, hosted by Sean Sullivan, to discuss the Corporate Transparency Act of 2021 that goes into effect January 1, 2024. The Corporate Transparency Act will have a significant impact on many small businesses regarding personal data they will need to report to the Federal Government. Failure to comply with the new law may result in hefty penalties. 

The Act was passed by Congress in 2021 and its intent is to identify beneficial owners of businesses in order to curb fraud and criminal financial activity. While past legislation has typically focused on large corporate businesses, this new law focuses on small businesses and could affect upwards of 33 million entities.

The Financial Cromes Enforcement Network (FinCEN), a bureau within the US Department of the Treasury, will be responsible for the administration and monitoring of the provided data.

 However, if you are a business with more than 20 employees, $5M in total gross receipts, and a physical office in the United States, you may be exempt from reporting.

If you do not meet the exemption tests, you may be required to report and will have to establish an account with FinCEN to begin reporting personal data about all beneficial owners within your organization. 

Beneficial owners may be defined by any of the following tests:

1. Senior officer of the organization.
2. Individual with the power to appoint/remove senior officers.
3. Individual that is an important decision maker over company structure/finances.
4. Catch-all provision (i.e., a “judgment call” of sorts regarding any other circumstances in which an individual might need to identify and report as a beneficial owner).

Large fines may be assessed for those organizations that do not remain in compliance (e.g., failure to report or failure to update changes to personal information in a timely manner). 

For more information and guidance from the Federal government, you can visit https://www.fincen.gov/boi-faqs. 

If you have further questions, you can visit www.redpathcpas.com/contact and fill out a form to have an advisor contact you.