Despite Current Injunction, Stay Prepared for BOI Reporting Requirements
The Supreme Court lifted an injunction on the beneficial ownership information reporting requirement on Thursday, Jan. 23, 2025 – however, enforcement of reporting is still on hold due to a separate nationwide injunction. Therefore, FinCEN has clarified that registration and reporting requirements remain voluntary for now. Windham Brannon still recommends that organizations continue to make plans and preparations for compliance if they are subject to the reporting requirements.
On Dec. 26, 2024, the Fifth Circuit Court of Appeals released a decision to make reporting beneficial ownership information (BOI) voluntary for now. On Dec. 31, the Department of Justice (DOJ) asked the Supreme Court to allow the reporting rules to take effect, but the court continues to keep the rules on hold for now. Plaintiffs have until Jan. 10, 2025, to respond. We currently recommend businesses continue to prepare to report BOI in the event reporting rules are reinstated.
A recent nationwide injunction issued by a federal district court in Texas has temporarily halted the implementation of the beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA). This development offers businesses a temporary reprieve, but it emphasizes the importance of compliance preparation amidst uncertainty in the legal landscape.
Background on the Corporate Transparency Act
The CTA is part of the National Defense Authorization Act in 2021, and it seeks to address money laundering, terrorist financing and other illicit activities by increasing corporate transparency. Under the act, entities categorized as “reporting companies” are required to disclose information about their beneficial owners and company applicants to the Financial Crimes Enforcement Network (FinCEN). The rule applies primarily to small businesses, while larger regulated entities (e.g., publicly traded companies) are generally exempt. Non-compliance could result in fines up to $10,000 and possible jail time.
The Injunction
On Dec. 3, 2024, a Texas federal district court issued a preliminary nationwide injunction that halted enforcement of the BOI reporting requirements. The court found the CTA likely unconstitutional, citing concerns about its breadth and potential burden on small businesses, and as such, hinders the government from enforcing the rule until further legal proceedings are concluded. On the upside, the injunction offers temporary relief to businesses that would otherwise have been required to file reports by Jan. 1, 2025. However, the government is expected to appeal the injunction, meaning if the appellate court overturns the decision, the reporting requirements could be reinstated with little notice, potentially giving businesses only a narrow window to comply.
Key Actions for Businesses
Despite the injunction, businesses should still act proactively to ensure compliance if the requirements are reinstated. Preparing now will minimize risks and avoid the scramble to meet deadlines under potentially tight timeframes.
- Determine if You Are a Reporting Company
A “reporting company” under the CTA includes most corporations, limited liability companies (LLCs) and similar entities created or registered to do business in the United States. Entities such as publicly traded companies and certain non-profits are exempt. Be sure to review your business’s structure to determine whether it meets the criteria for reporting requirements. If you are uncertain, consult legal or tax professionals to clarify your obligations.
- Identify Beneficial Owners and Company Applicants
The CTA defines a “beneficial owner” as any individual who:
- Directly or indirectly exercises substantial control over the reporting company, or
- Owns or controls at least 25 percent of the ownership interests in the company.
“Company applicants” typically include individuals involved in forming the entity, such as attorneys or registered agents.
- Gather Required Information
For each beneficial owner and company applicant, businesses must report the following details:
- Full legal name
- Date of birth
- Residential or business address
- A unique identifier, such as a passport or driver’s license number
Ensuring this information is accurate and up to date will facilitate timely filing if the rule is reinstated.
- Stay Informed
The status of the CTA’s reporting requirements remains uncertain, so it is crucial to monitor legal developments and updates from FinCEN, or from your team of legal and financial advisors.
Why Preparation Matters
While the injunction provides possible temporary relief from the reporting requirements, it is wise to not consider this a final resolution. Some legal professionals anticipate that the courts could reinstate the reporting rule, potentially with revised deadlines. Therefore, businesses subject to BOI reporting requirements should not delay preparation to avoid the risk of noncompliance or rushed efforts to gather relevant ownership information should the injunction be overturned.
For questions or more information, please contact your Windham Brannon advisor today, or reach out directly to Gary Gruner.
