On December 4, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA) that temporarily blocks its enforcement. The court’s opinion calls into question the constitutionality of the CTA and its burdensome impact on small businesses. This means that reporting companies do not have to submit a Beneficial Interest Ownership Report (BOIR) for the time being. The ruling is not a final determination of the CTA’s constitutionality and is subject to appeal.
As a reminder, the Corporate Transparency Act was enacted as part of the National Defense Authorization Act of 2021. The purpose of the CTA is to help prevent and combat money laundering, terrorist financing, fraud, corruption, and other illegal acidity using the country’s financial system. The CTA requires, in part, that the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”) implement a reporting system whereby companies must disclose certain detailed information to the federal government about certain individuals.
That resulted in the requirement that most entities—largely those that aren’t heavily regulated by the government already—submit a BOIR disclosing personal information about their “company applicants” and “beneficial owners.” A company created in 2024 has 90 days from the date it receives notice that the entity creation has become effective to submit its initial report to FinCEN. A company created prior to 2024 has until January 1, 2025, to submit its initial report. In addition, any changes to the information provided about a company applicant or beneficial owner must be updated within 30 days on an ongoing basis. Failure to comply could result in stiff penalties including civil fines up to $500/day not to exceed $10,000 or up to two years imprisonment, or both.
Again, the recent ruling means that all reporting companies are now exempt from filing a BOIR until further notice. However, it is not a final ruling on the merits. Companies should stay tuned for future developments.
Kyle McCutcheon is an attorney at Provident Law. His practice areas include business, real estate, and estate planning as well as advising church and nonprofit tax-exempt organizations. McCutcheon is licensed to practice law in Arizona and Missouri, and he can be reached at kyle.mccutcheon@ProvidentLawyers.com or at 480-388-3343.