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THE REPORT | September/October 2024 | CincyBar.org
The Corporate
Transparency Act: An Update and Overview
As you’ve likely heard, the Financial Crimes Enforce- ment Network (FinCEN) commenced enforcement of the Corporate Transparency Act (the CTA) on January 1, 2024. The CTA sets forth reporting requirements for compa- nies formed in the United States. Since its introduction in 2021, the CTA has been subject to scrutiny and debate due to its wide applicability and perceived gaps and ambiguities. There have since been constitutional challenges and FinCEN has repeatedly issued updated guidance in an attempt to address the scrutiny. Despite ongoing litigation and evolving guidance, businesses must remain vigilant and ensure compliance with the CTA to avoid potential civil and criminal penalties.
Update on Constitutionality of the CTA
In March of 2024, the U.S. District Court for the Northern District of Alabama held that the CTA is unconstitutional. The Court determined the CTA exceeds the constitutional limits on Congress’ power, leading to a permanent injunction that bars the government from enforcing the CTA against the plaintiffs.1 In response to the decision, FinCEN issued a notice clarifying the Court’s ruling will not impact enforcement of the CTA against other entities not party to the litigation.
The Department of Justice has since appealed the Alabama decision, and the appeal is now pending before the U.S. Court of Appeals for the Eleventh Circuit. Additionally, plaintiffs in Ohio, Maine, Michigan, Texas, and Massachusetts have initiated legal actions challenging the constitutionality of the CTA. Despite the ongoing litigation, FinCEN remains committed to enforcing the
By Kennedy Brooks
Updated Guidance from FinCEN
Since enactment of the CTA, FinCEN has used FAQs2 to provide clarity on various complex and ambiguous aspects of the CTA. Notably, FinCEN has provided the following guidance:
• Dissolved Entities: A company that otherwise meets the defi- nition of a “reporting company,” 3 but ceased to exist as a legal entity prior to January 1, 2024, is not required to report its bene- ficial ownership information (BOI) to FinCEN, but a reporting company that existed for any period of time on or after January 1, 2024 must report its BOI, even if it ceases to exist prior to its reporting deadline. A company is considered to exist even if its operations have ceased, but a formal dissolution has not been filed and processed.
• Tax Identification Number Reporting: A reporting company that is disregarded for tax purposes in the U.S. is required to file its BOI, including one of the following types of taxpayer identification numbers (TINs), if issued: (i) Employer Identi- fication Number (EIN); (ii) Social Security Number (SSN); or (iii) Individual Taxpayer Identification Number (ITIN). If the reporting company has its own EIN or is a disregarded entity, it may report its own EIN or the EIN of its owner as its TIN. If the reporting company has only one owner that is an individual with an SSN or ITIN, it may report that SSN or ITIN.
• Large Operating Company Exemption: Under the CTA, companies may qualify for the large operating company CTA against reporting companies. exemption4 based on their Federal income tax or informa-