The Corporate Transparency Act (CTA) officially took effect on Jan. 1, 2024. Enacted with aims to strengthen anti-money laundering efforts, the CTA requires entities that are formed or registered to do business in the United States to report their beneficial owners and company applicants. Entities that do not meet an exemption will have to file an initial report with the Financial Crimes Enforcement Network (FinCEN). For additional background on the CTA, please read our previous article.
Initial Reporting Begins & Approaching Filing Deadlines
FinCEN opened its filing portal on Jan. 1, 2024, and estimates 32 million entities will be required to report this year. Although entities formed before Jan. 1, 2024, have until the end of the year to file an initial report, entities formed in 2024 only have 90 days after formation to file. This means that entities created in early 2024 are quickly approaching filing deadlines.
State Beneficial-Owner Reporting
Late last year, New York became the first state to impose beneficial-owner reporting obligations. Modeled on the federal CTA, the state’s law requires certain entities — those that are formed under New York law or authorized to conduct business in the state — to file a report with the state or submit an attestation describing the applicable exemption from reporting. Federal CTA reports will not satisfy the state’s requirement. Several other states have proposed similar reporting obligations.
Federal Court Challenges
On March 1, 2024, the U.S. District Court for the Northern District of Alabama made a noteworthy ruling, declaring the CTA unconstitutional on the grounds that it exceeds Congress’ enumerated powers. This ruling was the result of a suit brought by the National Small Business Association and another individual (the plaintiffs). The Justice Department filed a notice of appeal on March 11, 2024.
In response to the ruling, FinCEN stated that it will not enforce the CTA against the plaintiffs while the appeal is ongoing. However, all other reporting companies are still required to comply with the law and file reports.
Given the potential for a drawn-out appeals process and FinCEN’s stated position on compliance, we recommend all reporting companies not subject to the district court’s order continue to comply with requirements as outlined by FinCEN’s regulations and guidance.
Rehmann is closely monitoring any developments in this area. To ensure your organization correctly complies with the CTA’s specific reporting requirements, reach out to your Rehmann advisor for guidance.