On  January 1, 2021, the Corporate Transparency Act (“CTA”) was enacted by Congress. The CTA is the largest anti-money laundering legislation passed since 2001.  The CTA created a new reporting requirement for businesses, which began on January 1, 2024, requiring any formally established business that is not subject to an exemption to file a Beneficial Owner Information Report (BOIR) with the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN) bureau. These reporting requirements impact most businesses, including salons and independent stylists.

What is the CTA and How Does it Impact Salon Owners and Stylists?

The CTA is designed to combat money laundering, terrorism financing, and other illicit activities by requiring disclosure. This information includes the identities of individuals who directly or indirectly own or control a significant interest in a business.

While salon businesses may not typically be associated with money laundering or terrorism financing, the CTA’s reporting requirements are broadly applied and include the beauty industry. As a salon owner, you may be subject to these new requirements if your business is structured as a corporation, limited liability company (LLC), partnership, or similar entity.

Recent Developments

On March 1, 2024, a U.S. District Court judge in Alabama ruled that the CTA is unconstitutional. However, on March 4, 2024, FinCEN issued a notice addressing the ruling, stating that FinCEN intends to enforce the CTA against all reporting businesses, except for the plaintiffs named in the above-referenced action. On March 11, 2024, the federal government appealed the ruling. With the ongoing litigation, it is of the utmost importance to monitor the status of the CTA for any new developments that may impact your reporting requirements and to ensure you are complying with the CTA.

Who Must File?

Domestic reporting companies are corporations, limited liability companies, and any other entities created by filing a document with a Secretary of State or any similar office in the United States. Essentially, this means that a business, other than a Sole Proprietorship, must file absent an exemption.

Foreign reporting companies are entities (including corporations and limited liability companies) formed under the law of a foreign country that has registered to do business in the United States by filing a document with a Secretary of State or any similar office in the United States.

The 23 Exemptions

Most exemptions to the Corporate Transparency Act apply to heavily regulated industries (i.e. banks, securities brokers, insurance companies). Only two of the twenty-three exemptions are generally seen in the salon industry, including Large Operating Companiesor Inactive Entities.

A Domestic Operating Business may be deemed a Large Operating Company if:

1. The entity employs more than 20 full-time employees in the United States; and

2. The entity has an operating presence at a physical office within the United States; and

3. The entity filed a Federal income tax for the previous year demonstrating more than $5,000,000 in gross receipts or sales; and

4. The entity reported this greater-than-$5,000,000 amount as gross receipts or sales (net of returns and allowances).

A Domestic Operating Business may be deemed an Inactive Entity if:

1. It was in existence on or before January 1, 2020; and

2. It is not engaged in active business; and

3. Is not owned by a foreign person; and

4. Has not changed owners in the last 12 months; and

5. Has not sent or received funds in an amount greater than $1,000 in the last 12 months; and

6. Does not hold any assets.

If neither of the exemptions above apply, your business is likely considered a Reporting Company and therefore must file a BOI Report with FinCEN.

What Deadlines Are Vital?

Businesses in existence prior to January 1, 2024 have until December 31, 2024 to report (from the time of actual/public notice that their company’s creation/registration is effective).

For businesses established on or after January 1, 2024, there is a 90-day deadline to file (from the time of actual/public notice that their company’s creation/registration is effective).

For businesses established after 2024, there is a 30-day deadline to file (from the time of actual/public notice that their company’s creation/registration is effective).

Businesses only need to file their initial BOIR, and then supplement information only when there is a change with respect to required information previously submitted to FinCEN concerning the Reporting Company or its Beneficial Owners. Corrected reports must be submitted within 30 days of the date of any changes or inaccuracies.

What Are the Consequences of Not Filing?

Willful failure to report complete or updated beneficial ownership information to FinCEN, or the willful provision/attempt to provide false or fraudulent beneficial ownership information may result in civil or criminal penalties, including civil penalties of up to $500 for each day that the violation (up to $10,000), or criminal penalties including imprisonment for up to two years.

Stay up to date with relevant CTA developments by following Azarvand Tax Law on Facebook or Linkedin. Please contact Azarvand Tax Law at (410) 698-4005 or book a free consultation at AzarvandTaxLaw.com to get started on the Corporate Transparency Act BOI Report filing process for your business, or to assist you with any tax issues you or your business may be facing, including, but not limited to, tax collection, audits, or compliance checks.

About the Author: Tina Azarvand is a Tax Attorney and is the founder of Azarvand Tax Law. She assists businesses with preventing, defending, and resolving tax controversies with the IRS and local taxing authorities. In 2023 and 2024, she was selected to the SuperLawyers: Rising Stars list, a distinction that less than 2% of attorneys receive.