A Texas federal district court issued an order on Tuesday, December 3, 2024, halting the Corporate Transparency Act (CTA) enforcement, indicating that the act may be unconstitutional. This order also affects the beneficial ownership information (BOI) reporting rule outlined in the CTA’s regulations.

On Wednesday, December 4th, 2023, a spokesperson for the Financial Crimes Enforcement Network (FinCEN), the agency responsible for enforcing the CTA, mentioned that they are currently reviewing the order, noting that other courts have previously denied similar requests. The Justice Department (DOJ) also filed a notice of appeal on Thursday, December 5th, 2024 night

The injunction, which the court has determined to be applicable nationwide, was delivered in Texas Top Cop Shop, Inc. vs. Garland, No. 4:24-CV-478 (E.D. Texas 12/3/24). Perhaps the goal is to leave beneficial business interests reporting to States. This injunction has now been overturned, effective December 23, 2024.

With this injunction in place, the CTA and the BOI reporting rule cannot be enforced, meaning that reporting companies are not required to meet the January 1, 2025, BOI reporting deadline until further notice from the court.

On Thursday, December 26th, 2024, a federal appeals court announced the reinstatement of a nationwide injunction, suspending the enforcement of beneficial ownership information (BOI) reporting requirements and overturning a decision made by the same court earlier that week.

In this latest ruling, the Fifth Circuit Court of Appeals explained that it was restoring a lower court's injunction to "preserve the constitutional status quo while the merits panel considers the parties' weighty substantive arguments," referring to the judges who will review the appeal.

For the time being, we have had three opinions in 3 weeks, which brings about confusion; if you have a reporting entity that has yet to file its BOI report, you are not obligated to file, though this could change unexpectedly. It’s advisable to have the necessary information ready should filing become required again. You may still opt to file voluntarily.

As of the morning of December 27, 2024, FinCEN’s reporting website, https://boiefiling.fincen.gov/, is accessible for report submissions. (Update: Later on December 27, FinCEN confirmed the new order but stated that reporting companies may continue to voluntarily submit beneficial ownership information reports.)

The Justice Department (DOJ) filed an application on Dec. 31 to lift a federal court's order that stopped the government from enforcing the Corporate Transparency Act (CTA). They argued that the government is likely to win the case. The DOJ said that the reporting rules in the Act are crucial for the government to help prevent, find, and prosecute crimes like money laundering, tax fraud, and terrorism financing. They believe these requirements fit well within Congress's power to regulate economic activities that affect interstate commerce, which includes the anonymous operation of businesses.

In response, the plaintiffs in the lawsuit, who are opposing the enforcement of beneficial ownership information (BOI) reporting requirements, asked the Supreme Court on Friday to deny the DOJ's request to enforce the law again. They argued that pausing the compliance deadline for this new reporting system wouldn’t really harm the government, especially since the government has already delayed this for three years. On the other hand, they claimed that forcing people to comply while the case is still being reviewed would seriously hurt them financially, with costs reaching tens of billions of dollars. They also said it would violate their First and Fourth Amendment rights by forcing them to reveal personal information about their associations. The plaintiffs pointed out that the Corporate Transparency Act, aimed at fighting money laundering, was enacted in 2021, which means the Treasury's Financial Crimes Enforcement Network (FinCEN) could have started enforcement in 2022. Instead, they set a deadline for reporting three years later.

In a statement released before the DOJ’s appeal, the AICPA recognized the potential impact of the injunction and advised CPAs helping clients with BOI reporting to be ready for any developments. Here are the halted guidelines:

The Financial Crimes Enforcement Network (FinCEN) has EXISTING rules for filing a Beneficial Ownership Information (BOI) report to combat money laundering, terrorism financing, and other illicit activities. These rules are guided by the Corporate Transparency Act (CTA) and FinCEN’s implementing regulations.

Key Details of FinCEN BOI Filing Rules:

Who Must File?

• Reporting Companies: Domestic and foreign companies operating in the U.S. are generally required to file BOI reports. This includes:

  • Corporations

  • Limited Liability Companies (LLCs)

  • Other similar entities created by filing with a state or tribal authority.

• Exemptions: Certain entities are exempt, including:

  • Publicly traded companies

  • Banks

  • Credit unions

  • Insurance companies

  • Money Service Business (MSB) like ComFiNow.com

  • Other entities heavily regulated by the federal government.

What Information Must Be Reported?

• Beneficial Owners: Individuals who directly or indirectly:

  • Own 25% or more of the company.

  • Exercise substantial control over the company.

• Required Details for Each Beneficial Owner and Company Applicant:

  • Full legal name

  • Date of birth

  • Address

  • Unique identifying number from an acceptable document (e.g., passport, driver’s license).

When Must Reports Be Filed?

Court AGAIN halts BOI reporting; AICPA urges preparedness.

• Existing Companies: A reporting company created or registered to do business before January 1, 2024, will have until January 1, 2025, now January 13th, 2025, to file its initial BOI report. A reporting company created or registered in 2024 will have 90 calendar days to file after receiving actual or public notice that its creation or registration is effective.

• New Companies: Companies created in 2025 must file within 30 days of formation or registration starting January 1, 2025.

• Updates: Changes to reported information must be updated within 30 days.

Penalties for Non-Compliance

• Civil Penalties: Up to $500 per day of non-compliance.

• Criminal Penalties: Fines up to $10,000 and/or imprisonment for up to two years for willful violations.

How to File?

• Filings are submitted electronically through the FinCEN portal. FinCEN provides detailed filing instructions and templates.

Purpose of the BOI Filing Rules

• These rules aim to enhance transparency and prevent misuse of legal entities in financial crimes by creating a comprehensive, non-public database of beneficial ownership information.

Commercial Financing Now ® is a Money Service Business (MSB) operating as a Non-Bank Financial Institution (NBFI) that abides by Anti-Money Laundering (AML) Regulations. These policies and procedures are internally published and meet reporting requirements while considering sanctions screening and transactional monitoring.

Commercial Finance Now does not provide tax, legal, or accounting advice. This post has been drafted for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before considering any tax treatments.