12/13/2024
Preliminary Injunction on the Beneficial Ownership Information Reporting
Our firm is sending this communication to provide you with a brief overview of recent legal developments regarding the Beneficial Ownership Information (BOI) reporting requirements under the Corporate Transparency Act (CTA).
Overview of Recent Legal Developments
On December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), the U.S. District Court for the Eastern District of Texas (“the Court”) issued an order granting a nationwide preliminary injunction (“Order”) against enforcing the CTA’s BOI reporting requirements. The Court determined that the CTA is likely unconstitutional as outside of Congress’s power, and because the BOI reporting rule implements the CTA, it is likely unconstitutional for the same reason. As such, Reporting Companies need not comply with the CTA’s reporting deadline pending further order of the Court.
In response, the Department of Justice (DOJ) filed an appeal on December 5, 2024, seeking to overturn the Court’s ruling noting that it prevents the Financial Crimes Enforcement Network (FinCEN) from enforcing BOI reporting nationwide.
FinCEN has issued an alert (“Alert”) acknowledging that while this litigation is ongoing, FinCEN will comply with the Order for as long as it remains in effect. Therefore, Reporting Companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, Reporting Companies may continue to voluntarily submit beneficial ownership information reports. In its Alert, FinCEN’s noted that Texas Top Cop Shop, Inc., et al. v. Garland, et al. is only one of several cases pending before courts around the country in which plaintiffs have challenged the constitutionality of the CTA. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe — consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon — that the CTA is constitutional.
What This Means for You
It is apparent that these recent legal developments have added more uncertainty, and some hope that the conflicting district court rulings may influence Congress to extend the initial reporting deadline to afford time for the courts to decide the constitutionality of the CTA. But such congressional action is far from certain. As such, for Reporting Companies that have not yet filed their initial BOI report, it may be prudent to continue to prepare for compliance by gathering all information and documents that the CTA requires.
Should the DOJ’s appeal succeed, being fully prepared with a complete and accurate FinCEN reporting form and ready to “hit send,” if ultimately required, would be prudent to avoid the risks and associated penalties for noncompliance. Note that penalties for willfully violating the CTA’s reporting requirements include (1) civil penalties of up to $591 per day that a violation is not remedied, (2) a criminal fine of up to $10,000, and/or (3) imprisonment of up to two years.
As the CTA is not a part of the tax code, the assessment and application of many of the requirements set forth in the CTA regulations, including but not limited to the determination of beneficial ownership interest, may necessitate the need for legal guidance and direction. As we are not attorneys, our firm is not able to provide you with any legal determination as to whether an exemption applies to the nature of your entity or whether legal relationships constitute beneficial ownership. In addition, we are not able to address the legal implications of these recent court proceedings.
Reporting Deadlines
As currently promulgated, the CTA’s reporting deadlines are as follows:
• All existing Reporting Companies — those formed or registered before January 1, 2024 — must report required information no later than January 1, 2025.
• All new Reporting Companies formed or registered on or after January 1, 2024, and before January 1, 2025, must report required information within 90 calendar days after their formation or registration.
• All new Reporting Companies formed or registered on or after January 1, 2025, must report required information within 30 calendar days after their formation or registration.
• Updated BOI reports are due within 30 calendar days after a change occurs.
• Corrected BOI reports are due within 30 calendar days after the Reporting Company becomes aware of, or has reason to know of, an inaccuracy.
Refer to FinCEN’s Frequently Asked Questions document (https://www.fincen.gov/boi-faqs) or to the FinCEN Reference Materials (https://www.fincen.gov/boi/Reference-materials) for detailed information and updated guidance regarding deadline changes that may be promulgated.
Next Steps
From our firm’s perspective, preparation remains paramount given the complexities of the current legal and regulatory landscape of the CTA. We strongly encourage any entity deemed a “Reporting Company” under the CTA to continue to gather and maintain accurate information about their beneficial owners and company applicants.
If you have any questions regarding the legal implications of these recent court proceedings, or need assistance with a legal determination as to whether an exemption applies to your entity or whether legal relationships constitute beneficial ownership, we strongly encourage you to reach out to legal counsel with expertise in this area to assist your organization.
For additional information regarding the beneficial ownership reporting requirements under the CTA, refer to FinCEN’s Frequently Asked Questions document at https://www.fincen.gov/boi-faqs.
As always, please feel free to contact us if you have any questions.
