On December 3, a federal district court in Texas issued a preliminary injunction that temporarily halts enforcement of the Corporate Transparency Act (CTA) across the United States. This broad ruling comes just weeks ahead of the January 1, 2025, deadline, which requires an estimated 32.6 million business entities to report their beneficial ownership information (BOI).
Background
Enacted by Congress in 2021, the CTA aims to combat money laundering, terrorist financing, and tax evasion. The law mandates that certain business entities file reports with the Financial Crimes Enforcement Network (FinCEN), identifying their owners, officers, and other control persons. In September 2022, FinCEN finalized rules requiring most entities to comply by January 1, 2025.
Despite its intent, the CTA has faced significant opposition. Critics argue that FinCEN has not provided sufficient guidance or publicized the requirements effectively. Legal challenges have raised constitutional questions, alleging that the reporting obligations infringe on First Amendment rights, violate Fourth Amendment protections against unlawful searches and seizures, and exceed Congress’ legislative powers.
Current Status
Following the court’s injunction, the CTA and its BOI reporting requirements are unenforceable nationwide for now. FinCEN, which is tasked with enforcing the CTA, has stated that it is reviewing the court’s order and noted that other courts have denied similar injunctions. The Department of Justice has not yet commented on whether it will appeal the decision. If an appeal is filed, the case will move to the Fifth Circuit Court of Appeals. The injunction is expected to remain in effect during the appeal process unless overturned.
Next Steps for Businesses
- If you have already filed your BOI report: No further action is required at this time.
- If you have not yet filed your BOI report: While filing is currently not mandatory due to the injunction, you may want to collect the necessary information to prepare for potential filing if the ruling is overturned.
Penalties for Noncompliance with the Corporate Transparency Act
Entities that willfully violate the Corporate Transparency Act’s (CTA) reporting requirements face significant penalties, including:
- Daily Fines: $591 per day for each day the violation continues, up to a maximum of $10,000.
- Imprisonment: Up to two years for willful noncompliance.
- Unauthorized Disclosure: Similar penalties apply for improperly disclosing or using the reported beneficial ownership information.
These severe consequences underscore the importance of compliance once enforcement of the law resumes. Businesses should ensure they are prepared to meet the reporting requirements if the preliminary injunction halting enforcement is lifted.
Our office will not provide specific advice on whether to file a BOI report by year-end. Businesses should consider their unique circumstances and consult legal counsel for tailored guidance.
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