The end of the year brought about a flurry of legal decisions related to the Corporate Transparency Act – a law passed in 2020 that generally requires legal entities with fewer than 20 employees and $5 million to submit "beneficial ownership information" with an agency called the Financial Crimes Enforcement Network. 

The end of the year brought about a flurry of legal decisions related to the Corporate Transparency Act (CTA). As a reminder, the CTA is a law passed in 2020 that generally requires legal entities with fewer than 20 employees and $5 million to submit "beneficial ownership information" with an agency called the Financial Crimes Enforcement Network (FinCEN). Beneficial owners are defined as those who exert "substantial control" over the entity, and the required information includes the names, addresses, and a copy of identifying documents (such as a drivers license or passport) of all the beneficial owners. The deadline to file this information was set by FinCEN for January 1, 2025, for entities that existed prior to this year (so-called "existing entities").

In December, a district court in Texas found that the CTA was "likely unconstitutional" and issued a nationwide injunction against FinCEN from enforcing the law. The government then appealed that decision to the 5^th Circuit Court of Appeals, and AGC filed a "friend of the court" or amicus brief in support of maintaining the injunction. On Monday, December 23rd, the 5^th Circuit then overturned the nationwide injunction, but then, on Friday, December 27th, another panel of the 5^th Circuit overturned its own decision, and allowed the injunction to remain in place. The net effect of this was that the end of year deadline for entities to submit reports to FinCEN has now passed, and FinCEN remains legally enjoined from enforcing the law, meaning contractors are not currently required to submit the information to the database.

On December 31st, the government again appealed this ruling, this time to the Supreme Court. The Court set a deadline of this Friday (January 10) for submitting legal briefs in response to the government's appeal. AGC, along with the AGC of New York State and other construction trade associations will again file a "friend of the court" brief with the Supreme Court on Friday in support of maintaining the injunction against FinCEN, so that contractors do not have to take the time and expense of filing BOI reports, pursuant to a law that is later found to be unconstitutional. For additional information and background about the CTA, please see below.

Background

As a reminder, the CTA was a law passed in 2020 that generally requires legal entities with fewer than 20 employees and $5 million in revenue to file "beneficial ownership information" (BOI) reports of anyone who exerts "substantial control" over the entity, with an agency called the "Financial Crimes Enforcement Network" or FinCEN.  

• BOI information includes the names, addresses, and electronic scans of identifying documents (such as a driver's license or passport) for all beneficial owners. 
• Reporting companies include non-exempt entities (exempt entities are generally financial services companies that have higher levels of compliance, such as banks, insurance companies, etc.) that file incorporation paperwork with their respective state Secretary of State.
• The penalties for noncompliance are significant, including substantial civil and criminal penalties of up to two years of jailtime and a $10,000 fine, and additional fines of up to $591 per day of noncompliance. 
• FinCEN estimates that 32 million existing entitieswill be required to file CTA-related paperwork, and an additional 3 million newly created entities per year, so the law will be felt widely throughout the country.
• AGC opposed this legislation, has supported its repeal and legal challenges, and issued extensive comments throughout the regulatory process.

During the rulemaking process, FinCEN set the deadline for "existing entities" (generally those that existed prior to January 1, 2024) to file their BOI information before January 1, 2025 (i.e. in one week).  Newly created entities have 90 days to file their BOI in 2024 (and 30 days in 2025 and beyond).

Legislative Efforts

Legislatively, AGC worked with coalition allies to either repeal or delay the CTA throughout 2024. This effort resulted in a one-year CTA delay being included in the bipartisan end of year funding agreement negotiated by Republican and Democratic leadership in the House and Senate. Unfortunately, that deal fell apart, and a slimmed down version of the continuing resolution passed the House and Senate in December, averting a government shutdown, but without the language delaying the CTA.

AGC Resources

Earlier this year, AGC hosted two webinars on the CTA, one with FinCEN itself, and another with a law firm specializing in CTA compliance. The recording of the latter webinar (free to AGC members, and more informative of the two) is available here:

https://attendee.gotowebinar.com/recording/2245404392883387906

For additional information please contact Matthew Turkstra.