Beneficial Ownership Reporting Temporarily Suspended
Earlier this week, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the requirements outlined in the Corporate Transparency Act (if you are unfamiliar with the requirements under the CTA, I outlined it last year here). The court ruled the CTA is likely unconstitutional and issued an order prohibiting the enforcement of the CTA as well as the Beneficial Ownership Information (BOI) reporting requirements:
“Having determined that Plaintiffs have carried their burden, the Court GRANTS Plaintiff’s Motion for a Preliminary Injunction. Therefore, the CTA, 31 U.S.C. § 5336 is hereby enjoined. Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court”
As a result of the ruling, FinCEN cannot enforce the requirements set forth in the CTA. FinCEN has yet to respond to the ruling, but they can appeal in hopes of overturning the decision.
What does this mean for businesses?
If you have already filed your BOI compliance report, there is no need for immediate action. Businesses can forego future filings for the time being. If there is a change in the ownership structure that would have required an updated BOI report, make a note in the event the ruling is overturned and subsequent reports are required.
If you have yet to file your BOI compliance report, there is also no need for immediate action. I recommend staying in contact with legal counsel and following the case for future updates that could impact the filing requirement.
That being said, any business is free to continue to comply with the original requirements if they choose. While the injunction was granted, it is uncertain if a future ruling can supercede the injunction and apply retroactively. If you would you like to remain in compliance with the original BOI requirements, you can continue to do so by utilizing the FinCEN website.
It is unclear if FinCEN plans to appeal the ruling or if the upcoming administration will take steps to limit the impact of the CTA. I will continue to monitor the situation and provide updates as they are available.
Update (as of December 9, 2024)
The U.S. government has appealed the injunction granted by the District Court. The court has the option to keep the injunction in place until there is a ruling on the appeal or it can modify the injunction during proceedings. This could include limiting the affecting parties or suspending the injunction altogether. It seems likely that the injunction will remain in place until there is a ruling.
For now, FinCEN is complying with the court order. Per the FInCEN website:
“In light of a recent federal court order, reporting companies are not currently required to file 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.”
This is not the first case to challenge the the CTA and it probably will not be the last.
Update (as of December 23, 2024)
The 5th Circuit of Appeals has stayed the injunction against the compliance requirement. The original CTA filing requirements, including filing a BOI report, are in effect. Those entities formed prior to January 1, 2024 will be required to file a BOI report before the extended January 13, 2025 deadline.
Update (as of December 26, 2024)
The 5th Circuit of Appeals has reversed the stay granted on December 23, 2024. The reversal reinstates the national injunction granted on December 9, 2024. This means there is currently no deadline to file the BOI report by January 13, 2025.