corporate transparency act
Written by Tyler Zimpfer, NALC Law Fellow with the OSU Agricultural & Resource Law Program
The Corporate Transparency Act (“CTA”), enacted in 2021, requires “reporting companies” to file documents with the federal government indicating beneficial ownership information (BOI) for the business. Earlier this year, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) began accepting BOI filings from certain companies doing business in the United States. While reporting has begun, several legal disputes have sprung up around the country challenging the constitutionality and enforcement of the CTA. Despite the ongoing litigation, however, the initial filing deadline of January 1, 2025 remains in effect for businesses subject to the CTA.
Recent litigation challenging the CTA
On March 1, 2024, a U.S. District Court in Alabama ruled that the CTA exceeded Congress’ enumerated powers and therefore was unconstitutional. The court held that “the CTA exceeds the Constitution’s limits on the legislative branch and lacks a sufficient nexus to any enumerated powers to be necessary or proper means of achieving Congress’ policy goals.” Specifically, the court concluded that Congress exceeded its foreign affairs, taxing, and commerce powers. Interestingly, the court did not decide on the arguments that the CTA also violates the First, Fourth, and Fifth Amendments to the U.S. Constitution.
The court prevented enforcement of the CTA against only the specific plaintiffs in the case – the National Small Business Association (NSBA) and one of its individual members. While NSBA members currently avoid any reporting requirements, CTA compliance is still required for all other companies. Therefore, the injunction imposed by the court lacks a significant, practical impact for all other businesses for the time being.
The United States has appealed the case, but most experts are not expecting a decision from the federal Court of Appeals for the Eleventh Circuit before the January1, 2025 deadline. When a decision is released, the losing party will likely appeal to the United States Supreme Court, dragging a final determination out even further.
Six other lawsuits have been filed in other federal district courts around the country, each expecting to last longer than the upcoming filing deadline. Long story short, the legal saga of challenges to the CTA is likely to continue for the foreseeable future.
Click here to read the recent U.S. District Court opinion from Alabama.
What the CTA requires
Several key terms of the CTA explain which companies the law affects and what a company must report by January 1, 2025:
- “Reporting companies” subject to the CTA includes any domestic or foreign corporation, limited liability company, or any other entity that is formed or registered to do business in a U.S. state by filing a document with the secretary of state or other similar office. Several exceptions exist for those industries already subject to government oversight.
- A “reporting company” must disclose certain information about the company and its “beneficial owners.” The reporting information includes the full legal name and the IRS taxpayer identification number of the company. BOI includes full legal name, address, and either an image of a U.S. passport, driver’s license, or other identification document issued by a state, local government, or tribe of each "beneficial owner."
- A “beneficial owner” is any individual who, directly or indirectly, exercises substantial control over the reporting company or owns or controls at least 25% of the ownership interests of a reporting company. There is no limit to how many beneficial owners a company may have.
To read specifics about the mechanics and submission guidelines of the CTA, please see our law bulletin, The Corporate Transparency Act: Reporting Requirements, published earlier this year.
What does the CTA mean for farming entities in Ohio?
Many farming entities should be uniquely aware of the new BOI reporting obligations of the CTA. The CTA does not have specific industry exemptions for agriculture but takes a broad sweep at any entity that may be formed as a shell company. However, notable exceptions to the mandates of the CTA that affect farming entities include sole proprietorships and general partnerships, which are exempt from CTA because they are not required to register with Ohio’s Secretary of State.
Farming entities classified as "reporting companies," such as most farm limited liability companies (LLCs), are required to report relatively straightforward ownership information. However, gathering the necessary details, like driver's licenses or other forms of identification, can be time-consuming. A scenario to take note of arises when an individual, despite owning only a small percentage of the company, is responsible for making many of the key short- and long-term decisions. This often occurs when management is passed to the next generation, while the older generation retains the majority of ownership. Under the Corporate Transparency Act (CTA), an individual who exercises significant management control must submit beneficial ownership information to FinCEN, even if their ownership stake is relatively small.
Additionally, any BOI updates such as a son or daughter being legally included in ownership of the farm’s assets or a beneficial owner's change of address must be reported within 30 days of the change. Forgetting to timely update the government may result in significant penalties for the company or a beneficial owner.
Moving forward
Farming entities that qualify as reporting companies should still expect to file information with FinCEN by January 1, 2025 as required by the CTA. Less than 10% of qualifying entities have filed with FinCEN so far, suggesting a delay in reporting or uncertainty regarding the District Court’s ruling in Alabama. Depending on current pending litigation, the CTA’s mandates may be adjusted or eliminated. Bills introduced in the U.S. House of Representatives and the U.S. Senate have also been proposed to modify or repeal the CTA, but no significant action has occurred on the proposals.
As litigation and legislation proceed, updates on the cases and bills will be forthcoming. In the meantime, farming entities should work with their attorneys, accountants, and other professionals knowledgeable of the new CTA obligations to meet the initial and future reporting requirements of the CTA.
Tags: corporate transparency act, CTA, beneficial ownership information, BOI, FinCEN
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Spring has officially sprung, and so have a few interesting legal updates. In this edition of the Ag Law Harvest we cover aggravated vehicular assault in a farm utility vehicle, "Made in the USA" labels, the Corporate Transparency Act's legal woes, USDA's Dairy Margin Program, and the U.S House Committee on Agriculture's Agricultural Labor Working Group's final report.
Driver of Farm Utility Vehicle Cannot be Found Guilty of Aggravated Vehicular Assault.
The Supreme Court of Ohio ruled that a driver of a farm utility vehicle involved in a crash cannot be convicted of a felony for injuring passengers because the vehicle does not meet the definition of a “motor vehicle” under Ohio’s criminal code. Joshua Fork of Sandusky County crashed his Polaris utility vehicle while driving under the influence at a party in 2020. Two of Fork’s passengers sustained serious injuries as a result of the accident. Fork was convicted of operating a vehicle under the influence (OVI), and two counts of aggravated vehicular assault. Fork did not contest his OVI conviction but did appeal his aggravated vehicular assault conviction to the Sixth District Court of Appeals. The case eventually made its way to the Supreme Court of Ohio.
In its decision, the Court found that Ohio law has two definitions of “motor vehicle.” One definition applies strictly to traffic laws and the other applies more broadly to Ohio’s “penal laws.” The Court held that the definition of “motor vehicle” that applies to penal laws, such as aggravated vehicular assault, exempts utility vehicles. The Court concluded that because of the utility vehicle exemption and the fact that the utility vehicle’s principal purpose is for farm activities, Fork cannot be found guilty of vehicular aggravated assault. To read more on the Supreme Court’s decision, visit: https://www.courtnewsohio.gov/cases/2024/SCO/0321/230356.asp
USDA Announces Final Rule on “Made in the USA” Labels.
The U.S. Department of Agriculture (“USDA”) announced the finalization of a rule to align the voluntary “Product of USA” label claim with consumer understanding of what the claim means. The USDA's final "Product of USA" rule permits the voluntary use of the "Product of USA" or "Made in the USA" label claim on meat, poultry, and egg products. However, these labels can only be used if the products are derived from animals that were born, raised, slaughtered, and processed in the United States. The rule aims to prevent misleading U.S. origin labeling, ensuring that consumers receive truthful information about the origins of their food.
Under the final rule, the "Product of USA" or "Made in the USA" label claim will remain voluntary for meat, poultry, and egg products. It will also be eligible for generic label approval, meaning it won't require pre-approval by the USDA's Food Safety and Inspection Service (“FSIS”) before use, but establishments must maintain documentation supporting the claim. Additionally, the rule permits other voluntary U.S. origin claims on these products, provided they include a description on the package of the preparation and processing steps that occurred in the United States upon which the claim is made.
Corporate Transparency Act Loses First Federal Court Battle.
As we have previously reported (here), the Corporate Transparency Act (“CTA”) requires certain business entities to file Beneficial Ownership Information (“BOI”) with the Financial Crimes Enforcement Network (“FinCEN”) or face civil and criminal penalties. However, an interesting twist in the CTA saga has occurred. A federal court in Alabama issued an opinion ruling the CTA unconstitutional, concluding that the CTA exceeds the U.S. Constitution’s limits on Congress’s power, and issued an injunction against the U.S. Government from enforcing the CTA against the named plaintiffs in the case. Therefore, the named plaintiff, Isaac Winkles, and companies for which he is a beneficial owner or applicant, the National Small Business Association, and the approximately 65,000 members of the National Small Business Association are currently not required to report beneficial ownership information to FinCEN. Everyone else must still comply with the CTA and the BOI reporting requirements.
FinCEN released a statement acknowledging the court’s ruling but emphasized that only the named plaintiffs are excused from reporting beneficial ownership information to FinCEN at this time. On March 11, 2024, the U.S. Government filed a notice of appeal of the lower court’s ruling, hoping to reverse the injunction and the court’s decision. We will continue to monitor the situation and keep you informed of any updates to the CTA and BOI reporting requirements.
USDA Announces 2024 Dairy Margin Coverage Program.
The U.S. Department of Agriculture (“USDA”) announced that starting February 28, 2024, dairy producers in the United States can enroll in the 2024 Dairy Margin Coverage (“DMC”) program. Enrollment for the 2024 DMC coverage ends on April 29, 2024.
The USDA's Farm Service Agency (FSA) has made revisions to the DMC regulations to allow eligible dairy operations to make a one-time adjustment to their established production history. This adjustment involves combining previously established supplemental production history with DMC production history for dairy operations that participated in Supplemental Dairy Margin Coverage in previous coverage years. DMC has also been authorized through the calendar year 2024 as per the 2018 Farm Bill extension passed by Congress.
FSA Administrator Zach Ducheneaux encourages producers to enroll in the 2024 DMC program, citing its importance as a risk management tool. The program has proven effective, with over $1.2 billion in Dairy Margin Coverage payments issued to producers in 2023. Ducheneaux highlights the program's affordability, noting that it offers a sense of security and peace of mind to producers.
DMC is a voluntary risk management program that provides protection to dairy producers when the margin between the all-milk price and the average feed price falls below a certain dollar amount selected by the producer. In 2023, DMC payments were triggered in 11 months, including two months where the margin fell below the catastrophic level of $4.00 per hundredweight, marking a significant development for the program.
House Committee Releases Final Report Recommending Changes to H-2A Program.
On March 7, 2024, the U.S. House Committee on Agriculture’s Agricultural Labor Working Group (“ALWG”) released its final report containing policy recommendations for U.S. agricultural labor. The report includes significant reforms to the H-2A program, many of which, as announced by the ALWG, received unanimous support from the bipartisan working group. The recommended policies encompass creating a single H-2A applicant portal, implementing H-2A wage reforms, establishing a federal heat standard for H-2A workers, and granting year-round industries such as livestock, poultry, dairy, peanuts, sugar beets, sugarcane, and forestry access to the H-2A program.
Tags: Utility Vehicles, USDA, Dairy Margin Program, H-2A, Ag Labor, Food Labeling, corporate transparency act
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On January 1, 2024, The Corporate Transparency Act (CTA) took effect with the primary purpose of combatting money laundering, illicit financial transactions, and financial terrorism. The CTA established the Financial Crimes Enforcement Network (FinCEN) in the U.S. Department of Treasury to oversee a national registry of information on owners of entities that are exempt from conventional disclosure regulations. The CTA requires many businesses formed or operating in the United States to report information about their “beneficial owners” to FinCEN. This new law will affect many farms and small businesses.
Any entity that is required to be registered with the Ohio Secretary of State will be considered a Reporting Company and subject to the CTA. Generally, this means LLCs, corporations and limited partnerships, common entities for farms, are all subject to the CTA. There are some types of businesses that are exempt from the CTA, such as banks and accounting firms, but farms are not exempt.
The CTA primarily targets small businesses. Therefore, an exemption is provided for large operating companies. Companies that meet the following conditions are exempt from the CTA reporting requirements:
- employs more than 20 fulltime employees in the United States
- has an operating presence at a physical office within the United States; and
- Filed a Federal income tax or information return in the United States for the previous year demonstrating more than $5M in gross receipts or sales.
Every Reporting Company must provide FinCEN with information for each and every beneficial owner of the business. A beneficial owner is any owner that exercises substantial control or owns at least 25 percent of the business. The information required for each beneficial owner is as follows:
- Full legal name.
- Date of birth.
- Complete current address.
- Unique identifying number and issuing jurisdiction from one of the following, along with its image:
- U.S. passport.
- State driver’s license.
- Identification document issues by a state, local government or tribe.
Each Reporting Company must submit an initial filing but also must update the filing if there is any change to the required information about the business or beneficial owners. For example, if a beneficial owner has a change of address or obtains a new driver’s license, the Reporting Company must update the report with FinCEN. Both the initial report and updates are filed though the FinCEN website portal at www.fincen.gov/boi.
So, what does this all mean for farm businesses? The CTA and beneficial owner reporting requirements may seem like an intrusion of privacy. It is, in fact, an intrusion of privacy, but Congress has determined that the intrusion is necessary to protect against money laundering, illicit financial transactions, and financial terrorism. Right or wrong, the CTA is now law and farm businesses must follow it to avoid penalties.
The process of reporting should not be overly difficult using the FinCEN online portal. But the reporting will take time, especially for entities with many owners. While the entity should already have each owner’s name, address, and ownership percentage, collecting an image of each owner’s identification document could be time consuming. All businesses required to report under the CTA should develop a plan to file the initial report, monitor reportable changes, and file updated reports. Attorneys, accountants, lenders, and other professionals working with farms should also help remind their clients of the need for the initial reporting and future, updated reports. The CTA reporting is a significant change in business entity management and it may take the entire business team to ensure compliance.
For more information and a detailed discussion of the CTA, see The Corporate Transparency Act: Reporting Requirements law bulletin available at farmoffice.osu.edu.
