Federal Court Temporarily Suspends Beneficial Ownership Information Reporting

ARTICLE | December 20, 2024

Authored by Schlenner Wenner & Co

A recent federal court decision has brought a temporary halt to the enforcement of the Corporate Transparency Act (CTA) that requires companies to submit their Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). This decision, made by a federal district court in Texas, has been a significant development for businesses nationwide, affecting their compliance strategy and reporting duties.

The CTA was enacted with the intention of enhancing corporate transparency and reducing illicit financial activities such as fraud and money laundering. The Act required businesses, particularly small entities, to report their beneficial ownership information - details about individuals who ultimately own or control the business - to FinCEN. Compliance deadlines were set based on the entity's date of formation, with the first major deadline being January 1, 2025, for businesses created or registered before January 1, 2024.

However, on December 3, 2024, the court issued a nationwide preliminary injunction against the enforcement of the CTA, citing that it exceeds Congress's authority and infringes upon states' rights to regulate businesses. This ruling effectively suspends the January 1, 2025, reporting deadline for all businesses. While the injunction is in effect, businesses are not required to submit BOI to FinCEN and will not face any liability for non-compliance.

Despite the court's decision, FinCEN still accepts BOI reports, allowing businesses to voluntarily submit this information during this period. For those who had already submitted their BOI reports before the court order, no further action is presently required.

While this court order provides a temporary respite from mandatory BOI reporting, it is essential for businesses to stay informed. The ongoing legal proceedings could result in the reversal of the court order, reinstating the BOI reporting requirement.

As the legal landscape surrounding beneficial ownership reporting continues to evolve, it is recommended that businesses closely monitor developments and consult with their legal counsel for guidance.

In conclusion, this injunction has brought temporary relief to businesses from the BOI reporting requirement. However, with the possibility of future court decisions or legislation overturning or modifying the ruling, businesses need to stay vigilant and informed about their reporting obligations.

Please contact any of our offices if you would like more information regarding this.