Corporate Transparency Act Will Take Effect Jan. 13, 2025

The Corporate Transparency Act (CTA) is back and will take effect on Jan. 13, 2025.

On Dec. 3, a federal judge from the Eastern District of Texas (Sherman Division) issued a preliminary nationwide injunction, preventing Treasury’s Financial Crimes Enforcement Network (FinCEN) from enforcing the CTA and its implementing regulations. On Dec. 23, the 5th U.S. Circuit Court of Appeals lifted that earlier order. Following that decision, FinCEN announced it will delay enforcement until Jan. 13, 2025. The original deadline was Jan. 1, 2025.

Background on CTA

By Jan. 13, millions of small businesses, including farms, have to report their beneficial ownership and tax ID numbers to the U.S. Treasury Department. The IRS has nothing to do with this. These reports must be filed electronically with the department’s FinCEN. The goal is to help catch crooks who use shell companies for money laundering and other financial crimes. 

For this new obligation you can thank the CTA, a law passed in 2021 with bipartisan support, by more than 200 House Democrats and 100 Republicans. 

Not all farms must report; sole proprietorships and general partnerships are exempt. The law applies to farms organized as corporations, LLCs, or other entities on file with a secretary of state. 

Entities formed this year already had to report to FinCEN, but the Jan. 13 deadline applies to older ones. Penalties for not filing are fines of up to $10,000 and two years in federal prison.

Reporting Process

For some farms, reporting could be relatively simple. According to a Platinum Filings white paper, the law contains three main categories of required information:

1. Details on the reporting company or entity — Its full legal name, all trade names, its address, the state where it was formed, and its taxpayer identification number or employer identification number. 
2. Beneficial owner information — Each owner’s full legal name, date of birth, residential address, and the number on a current form of ID such as a driver’s license or passport. (To simplify this, owners can get a personalized ID number from FinCEN.)
3. For entities formed after Jan. 1, 2024, information about the person who filed paperwork to establish the company or LLC. 

Iowa State University’s Center for Agricultural Law and Taxation offers this example of the simplest situation: 

“In 2020, George and Marge formed GM, LLC, an entity to manage their farmland. They each own 50% of the LLC. George and Marge are the only officers of the entity, which has no employees.

“George and Marge are both beneficial owners of GM, LLC. By Jan. 13, 2025, the LLC must file an online beneficial ownership information report with FinCEN, reporting the required information for the company, George and Marge.”

Platinum Filings estimates that if a small business has all of its needed documents at hand, the business owner could go to the FinCEN website and complete the form in under one hour.

For larger farms, feedlots, and other agricultural businesses, these reports are more complicated. 

Determining “beneficial owners” can be tricky. FinCEN defines that as anyone who owns or controls at least 25% of the entity; with stock, equity, or voting rights, for example. But that can be less than 25% for anyone with “substantial control” such as senior officers and important decision-makers. There are no limits on the potential number of beneficial owners.

For such fine points, getting help from your accountant, attorney, or a third-party service makes sense.

When to Update

FinCEN doesn’t require annual reports but does require a new filing any time there’s a change in your business organization.

“The real pitfall is the need for updates,” said Steven Friedman, president and CEO of Platinum Filings. According to the Platinum Filings white paper:

“There are many possibilities for the kinds of big and small changes that could trigger the need to file an updated or corrected report: a residential move, a sale/merger/acquisition/dissolution, someone changing their name, a new assumed name for the business in any state it might operate in, a new passport for a beneficial owner, executive management turnover, etc. In any of these cases,” the paper asserts, “the correct information needs to be captured and stored — and a whole new report with all relevant detail needs to be filed for each entity that those beneficial owners touch. It’s not possible to change just one piece of information.”

What to Do Next? 

For advice, start with your tax preparer and attorney. 

Before doing that, these online links can prepare you: