New Reporting Requirement: Corporate Transparency Act (CTA)
With the fourth quarter here and 2025 only a few months away, many small business owners have begun preparing for the next year. That means consolidating various tax, financial, employee, and regulatory information to meet different post-new year reporting requirements.
As you begin this process, one new mandate that you may not be aware of is the Corporate Transparency Act (CTA).
Before we dig into a few details, it should be noted that we’re warning members of the potential impact of the CTA for instructional and informational purposes only. Much as we made members aware of the Employee Retention Credit (ERC) throughout the COVID pandemic, we are offering up these details so you can seek insight from your tax-, legal-, and financial- advisors on if the mandate will affect you.
For background, the CTA was enacted as part of the National Defense Authorization Act for 2021, but only went into effect on January 1, 2024. From the onset, it only affected businesses that were started in the 2024 calendar year. However, for companies formed before January 1, 2024, there is a secondary reporting mandate deadline set for January 1, 2025.
Broadly speaking, the reporting requirement focuses on Beneficial Ownership Information (BOI), which captures details on any person who owns or controls a small business entity. A “beneficial owner” is someone who owns at least 25% of a company; or exerts considerable control over a business. The goal is to ferret out bad actors who abuse business entity filings (i.e. LLCs, corporations, and other business registrations) to launder money, commit tax evasion, and engage in illegal activity (i.e. funding terrorism, drug transactions, illegal arm sales, etc). In mandating this information, the government seeks to increase ownership transparency. Submissions are made to the Financial Crimes Enforcement Network (FinCEN) within the U.S. Department of the Treasury. Non-compliance could mean significant penalties if it is determined that you willfully did not comply with the mandate (fines up to $10,000 and imprisonment for up to two years).
You can learn more about this mandate in this article by the U.S. Chamber of Commerce by clicking HERE.
You can read more about the reported requirements in FinCEN’s Small Entity Compliance Guide by clicking HERE.
The CTA has attracted a lot of attention and significant pushback from the broader business community and civil libertarians.There have been lawsuits filed in various jurisdictions, alleging that the reporting requirements are unconstitutional as a potential Fourth Amendment violation. Some of the plaintiffs include affected small business owners themselves, but also trade groups and nonprofit entities. In fact, our colleagues in Washington, D.C. at the national Service Station Dealers of America (SSDA) have been pushing for a bill that to delay the mandate for an additional year – which is looking unlikely to be passed before the January 1, 2025 deadline. The Bill actually passed the House 420-1, but apparently the Senate Banking Chair, Sen. Sherrod Brown (D-OH), is personally opposed to the delay so is single-handedly preventing it from moving forward.
This is becoming a contentious issue and there has been a patchwork of judicial responses in different jurisdictions around the country. In March, a US District Court in Alabama found that the CTA’s reporting requirements were unconstitutional and exceeded Congressional authority. That case (National Small Business United v. Yellen) is now on appeal. Ultimately, the numerous individual appeals may force the U.S. Supreme Court to hear arguments to resolve CTA’s constitutionality nationwide. Meanwhile, several Congressional lawmakers have also sponsored different pieces of legislation to modify or remove the requirement altogether.
The above protests aside, none of the legal challenges or proposed Congressional actions will bring clarity before the end of the year. Which means that you may be required to comply with the mandate while the courts and lawmakers slug it out.
Some members may read this notice and believe their small business will not be affected by the mandate. However, it should be noted that most entities with fewer than 20 employees or less than $5 million in revenue are affected.
Some members may have already known about the CTA and completed the requirement earlier this year. Others are learning of it for the very first time. No matter your posture, our goal is to make you aware that this obstacle exists and urge you to seek out professional advice on how you should proceed.
Please speak with your tax-, legal-, or financial-professional for advice, and feel free to email Eric eric@njgca.org or Nick nick@njgca.org with any general questions
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