Beneficial Ownership Information Reporting Halted – But Companies Encouraged to Report Voluntarily
Published on by Andy Bertke in Firm News, Tax Services
In a significant turn of events, a federal court has issued an injunction halting the enforcement of the Corporate Transparency Act (CTA) and its accompanying Beneficial Ownership Information (BOI) reporting requirements. This development has stirred both relief and uncertainty among businesses across the nation – and understanding what this suspension entails and how it may impact your businesses is crucial for owners and stakeholders navigating this evolving landscape.
The CTA aimed to increase transparency in corporate ownership, but its implementation has met with challenges. But what does the court’s decision to stop enforcement mean for you, what are the implications for business owners, and how should you proceed during this period of uncertainty?
Background on the Corporate Transparency Act (CTA)
The CTA, enacted by the U.S. Congress in 2021, mandates reporting companies to disclose the details of beneficial owners of the entities. This anti-money-laundering initiative further requires companies incorporated after January 1, 2024, to reveal the identity of applicants, defined as any individual filing an application to form a corporation, limited liability company, or other similar entity. The penalties for willful violations are substantial, including a daily fine of $591, up to $10,000, and up to two years imprisonment.
The court injunction: what happened?
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued an injunction in the case of Texas Top Cop Shop, Inc. vs. Garland, effectively halting the enforcement of the CTA and BOI reporting requirements nationwide. The plaintiffs, including the National Federation of Independent Business (NFIB), challenged the constitutionality of the CTA, arguing that it overstepped Congress’s legislative authority.
Consequently, reporting companies are not required to comply with the CTA’s January 1, 2025, BOI reporting deadline until further notice. The Financial Crimes Enforcement Network (FinCEN), responsible for enforcing the CTA, is currently reviewing the order.
The court labeled the CTA as “quasi-Orwellian,” and stated that the legislation, “is likely unconstitutional as outside of Congress’s power.” The government’s argument that the CTA is a law enforcement tool was rejected by the court, which maintained that the CTA regulates a domestic issue rather than foreign affairs.
While the largest plaintiff in the case, the National Federation of Independent Business (NFIB), has around 300,000 members, the court’s order is expected to apply nationally. This decision has sparked controversy around nationwide injunctions, but given the extent of the constitutional violation presented by the plaintiffs, the court believes the injunction should be applied universally.
Nevertheless, it’s recommended that professionals gather the necessary information from their clients and be ready to file the BOI report if the injunction is lifted. Follow up with your attorney for guidance.
FinCEN recommends voluntary filing
In the wake of the court’s injunction, FinCEN is suggesting companies “voluntarily” report beneficial ownership information while the Department of Justice appeals the preliminary injunction, stating on its website “In light of a recent federal court order, reporting companies are not currently required to fil the beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
Good luck with that.
Next steps
As the business world awaits further developments, the impact of this injunction on the legal landscape and the future of the CTA and BOI reporting rule remains to be seen. The AICPA, in its commitment to advocate on behalf of small businesses, will continue to engage in dialogue with FinCEN for clarity and relief.
For recommendations on how to proceed regarding the BOI, please consult your legal professional. While Barnes Dennig does not provide services related to BOI our tax professionals are committed to supporting our clients through complex regulatory environments. We offer:
- Expert Guidance: Our specialists can help you understand how the injunction affects your specific business circumstances.
- Compliance Assistance: We can assist in collecting and organizing the necessary reporting information, ensuring you are prepared for any eventuality.
- Updates and Alerts: We provide timely updates on legal developments and regulatory changes that may impact your obligations.
- Strategic Planning: Our team can help you develop strategies to manage risks and maintain compliance in a shifting regulatory landscape.
Again, we recommend consulting with your attorney on steps to take regarding BOI reporting. If you have any questions about requirements contact us we’re here to help!