Many roofing companies have wondered how the Corporate Transparency Act (CTA) will impact their business. The guidelines and requirements are confusing. To complicate things further, a recent court decision calls into question the constitutionality of the CTA and whether it will continue exist. This article will discuss the requirements and summarize the recent court decision.

The Basics of the CTA

The CTA was passed in 2021 as a way to enforce transparency in business structures ownership and structures. Its goal is to collect ownership information and ultimately prevent tax fraud, money laundering, terrorism financing, and other illegal activities. Businesses that meet the CTA criteria are required to complete a Beneficial Ownership Information (BOI) Report and provide it to the Financial Crimes Enforcement Network (FinCEN), which operates as part of the U.S. Department of Treasury. Through the BOI, companies supply details about individuals associated with their businesses.

Are You Required to Report?

Most businesses that are incorporated or registered to operate in a state must provide details about their officers and owners, as well as other significant stakeholders. Nearly every small business will be affected. These include primarily limited liability partnerships (LLPs), limited liability companies (LLCs), limited liability limited partnerships (LLLPs), and business trusts. Single-owner LLCs must report; however, sole proprietors not registered as LLCs are not mandated to do so.

The CTA requirements apply to both domestic and foreign businesses.

• Domestic reporting companies: These include corporations and LLPs, as well as other businesses created after filing with a secretary of state or another office under state or tribal law
• Foreign reporting companies: These include corporations and LLCs, as well as other businesses formed under the law of a foreign country and registered to operate in a U.S. state or tribal jurisdiction

Are You Exempt
Many larger companies that operate in highly regulated industries are subject to other requirements, so they are not mandated to complete the CTA reporting. These fall into 23 categories, including Bank Holding Companies and Savings and Loan Holding Companies, Banks, Domestic Credit Unions, Financial Market Utilities, Public Utilities, and Large Operating Companies.

Large Operating Companies are defined as those meeting the following criteria:

• Employing more than 20 full-time workers in the United States
• Operating at physical offices located in the United States
• Reporting more than $5 million in gross sales or receipts, as listed on their previous year’s tax returns

Required Information
Companies that are not exempt from the CTA must submit details such as the following:

• Name of the reporting company, as well as applicable trade names, registration jurisdiction, physical address, and tax identification number
• Names of the reporting company’s beneficial owners, their addresses, birthdates, addresses, and numbers from government-issued identification (passport or driver’s licenses), as well as copies of those ID documents
• Names of the individuals who filed the application documents to create the business or who directed another person to do so

What is a beneficial owner?
That term is defined as someone who has substantial control over the company or controls a considerable interest in the company (at least 25%). This information must be listed on the beneficial ownership interest report (BOI).

It is critical that the information submitted is accurate and updated as needed. If an error is discovered or a detail must be changed, those revised reports are required within 30 days of realizing the error or the event that necessitated the change. Examples of such change events include a beneficial owner assuming a new name, passing away, or moving. Revised reports must also be submitted if an owner’s form of identification has expired or a company changes its address.

Note: Companies that provide inaccurate information, do not submit complete information, or do not promptly amend information can face criminal and civil penalties. These can include up to $10,000 for each violation and two years in prison.

What Are the Deadlines?

The requirements took effect on January 1 of this year, but most companies have some time to comply.

If a company was formed before January 1, 2024, the deadline for its initial report is January 1, 2025.

If it was created between January 1, 2024, and January 1, 2025, the deadline for its initial report is within 90 days of the company’s formation.

If an entity was formed on January 1, 2024, or later, it must file its initial BOI Report within 90 days of the company’s creation. Any entity created after January 1, 2025 will have 30 days to file its initial BOI Report. Any amendment to the BOI Report must be filed within 30 days.   

Recent Court Decision

On March 1, 2024, U.S. District Court Judge Liles C. Burke (Northern District of Alabama, Northeastern Division) reviewed the CTA and determined it was unconstitutional. Many expect that the Department of Justice will appeal this decision, so this matter is far from over. However, this ruling has brought attention to the issue and may bolster the position of our nation’s small businesses. As of the writing of this article, the CTA is still in existence and being enforced.

Final Advice

If the CTA survives judicial scrutiny, you are advised to begin organizing the information about your beneficial owners as soon as possible. If your company was formed before 2024, your initial report deadline is not until January 1 of next year. However, you must allow yourself enough time to locate the registration documents and collect the other required details.

To learn more about the requirements, visit the FinCEN web page. There, you will also find instructional videos and Frequently Asked Questions.

The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.

Trent Cotney is a partner and Construction Practice Group Leader at the law firm of Adams and Reese LLP and RSASC General Counsel. You can reach him at trent.cotney@arlaw.com or 866.303.5868.