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  • Writer's pictureVernessa Poole

Corporate Transparency Act Compliance Tips & Recent Changes

The Corporate Transparency Act (CTA) mandates that certain businesses report their beneficial owners to the US Department of the Treasury. By enhancing transparency, the CTA was designed to prevent illegal activities such as money laundering and tax fraud. The approaching deadline introduces a timely opportunity for companies to reassess their compliance strategies and ensure their operations align with federal requirements. This transition period is crucial for businesses to maintain seamless operations and uphold their commitment to compliance.

Its Application & Exceptions 

The CTA applies to corporations, limited liability companies, and similar entities, requiring them to submit a report identifying their beneficial owners. However, not all businesses fall under this mandate. There are exceptions, most notably "large operating companies.” To qualify, a company must have over 20 full-time employees working at least 30 hours per week based in the US and report over $5 million in revenue from gross receipts or sales. 

Businesses need to assess their status both currently and in the past year. Even if your company does not meet the reporting criteria, establishing a compliance policy ensures readiness for future changes. This foresight is key in adapting to regulatory changes without disrupting business operations. Additionally, maintaining accurate and current records can significantly reduce compliance burden. Businesses on the cusp of these thresholds should monitor their status closely, as employee count or revenue fluctuations can change their reporting obligations. Understanding these nuances is vital for proper planning and avoiding potential penalties.

Tips for Compliance 

For businesses that are required to submit reports, identify who your beneficial owners are. This includes any individual with a significant ownership interest or who exercises substantial control over the company. Ongoing compliance involves updating this information with important changes, such as new licenses or passports. One practical approach is utilizing the identification number, particularly beneficial for officers, directors, or key personnel involved in multiple entities. This method consolidates updates in one place, enhancing privacy and simplifying compliance. 

Using the ID number not only streamlines the process but also provides security for personal information. Entities should engage in BOI reporting and e-filing as a proactive measure to ensure all data is accurate and up to date. This approach leads to a more straightforward management of your compliance responsibilities and reduces risk. This system is especially advantageous for those managing multiple roles across different companies, allowing for a more organized and efficient way to fulfill legal requirements. By adopting these strategies, businesses can navigate the complexities of the CTA with greater ease and confidence.

Is It Constitutional? 

On March 1, 2024, a landmark decision emerged from the U.S. District Court for the District of Alabama, declaring the Corporate Transparency Act (CTA) unconstitutional in the case of National Small Business Association v. Yellen. Judge Liles C. Burke delivered this ruling, contending that the CTA surpassed the constitutional boundaries of Congressional authority. 

The act's requirement for small businesses to submit reports about their beneficial owners to FinCEN was deemed not sufficiently tied to any of Congress's enumerated powers, essential for achieving its policy goals. The court's decision, effectively suspending the CTA's application to the plaintiffs pending further legal discussions, has been met with applause from small business owners burdened by the prospect of high compliance costs. On the other hand, the ruling is viewed with concern for its possible negative impact on efforts to fight money laundering and ensure corporate transparency. 

This development underscores the complex balance between regulatory enforcement and constitutional rights, setting a precedent with significant implications for reporting requirements of U.S. businesses and the broader objectives of national security. The eventual outcome of this legal challenge, which may advance to the Supreme Court, remains a critical focus for both the business and legal communities.

Stay in Compliance with Temple Law, PLLC

If your business is navigating the requirements of the CTA, we're here to help. The first step is understanding whether you fall into the exception category. For those who must comply, we recommend registering for a identification number and engaging in BOI reporting and e-filing to protect your information and meet compliance requirements efficiently. 

Now is the opportune time to address these obligations. If you are considering closing a business, this new mandate may encourage you to speed up your timeline. Schedule a consultation with us to ensure your business complies with the CTA. Let's tackle these requirements and keep your business moving forward without unnecessary hurdles.

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