On December 23, 2024, a significant legal development took place when the Fifth Circuit Court of Appeals lifted the injunction that had temporarily blocked the Financial Crimes Enforcement Network (FinCEN) from enforcing the Corporate Transparency Act (CTA). This injunction had been issued by a Texas district court ruling on December 3, 2024, and was subsequently appealed by the Department of Justice (DOJ).
With the lifting of the injunction, businesses are once again required to comply with the CTA’s Beneficial Ownership Information (BOI) reporting obligations. However, the Department of the Treasury has provided some flexibility, offering extended deadlines for compliance in light of the disruption caused by the injunction. Here’s everything businesses need to know about the current reporting requirements, deadlines, and the legal context surrounding this development.
What is the Corporate Transparency Act (CTA) and BOI Reporting?
The Corporate Transparency Act, enacted as part of the Anti-Money Laundering Act of 2020, mandates that certain businesses report their beneficial owners to FinCEN. The aim is to combat money laundering, terrorism financing, and other illicit activities by increasing transparency in business ownership structures.
Beneficial owners are defined as individuals who, directly or indirectly, exercise substantial control over a company or own at least 25% of its equity interests. Companies subject to the CTA must provide these ownership details to FinCEN, which will maintain a confidential registry of this information. The CTA is expected to help authorities track illegal financial activity and increase corporate accountability.
Key Deadline Extensions for Reporting Companies
While businesses are now required to submit their BOI reports, the Department of the Treasury has recognized that some companies may need more time due to the previous legal suspension. As a result, the following extended deadlines apply:
- For companies created or registered before January 1, 2024:
These businesses have until January 13, 2025, to file their initial Beneficial Ownership Information reports with FinCEN. The original deadline would have been January 1, 2025, but this extension provides businesses with extra time to meet compliance requirements. - For companies created or registered between September 4, 2024, and December 23, 2024:
These businesses now have until January 13, 2025, to submit their BOI reports. This extension applies to businesses whose initial filing deadlines fell between December 3, 2024, and December 23, 2024. - For companies created or registered between December 3, 2024, and December 23, 2024:
These businesses are given an additional 21 days from their original filing deadline to submit their initial reports. - For companies eligible for disaster relief:
These businesses may be entitled to further extensions beyond January 13, 2025, depending on the circumstances. They should adhere to the latest applicable deadline. - For companies created or registered on or after January 1, 2025:
These companies will have 30 days to file their BOI reports after receiving notice of their registration or creation. - Exempted businesses (due to litigation):
Certain businesses involved in ongoing litigation, such as those named in the case National Small Business United v. Yellen, are currently exempt from the BOI reporting requirement. Plaintiffs in this case, including Isaac Winkles and the National Small Business Association, will not need to submit BOI reports as of March 1, 2024.
Legal Background: The Role of the Fifth Circuit Court of Appeals
The legal landscape surrounding the CTA has been in flux, with several challenges to the law currently in the courts. The case Texas Top Cop Shop, Inc. v. Garland is one of several lawsuits contesting the CTA’s constitutionality. On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, temporarily blocking the implementation of the BOI reporting requirements.
In response to this ruling, the DOJ filed an appeal, seeking to lift the injunction. On December 23, 2024, the Fifth Circuit Court of Appeals granted the DOJ’s request, lifting the district court’s injunction and allowing the CTA to move forward. This ruling has now paved the way for businesses to resume compliance with the CTA’s reporting obligations.
It’s worth noting that the Texas district court ruling contrasts with decisions in other parts of the country. Courts in Virginia and Oregon have ruled in favor of the government, rejecting similar injunction requests and upholding the constitutionality of the CTA.
What Does This Mean for Businesses?
For businesses that fall under the CTA’s requirements, the primary takeaway from this legal shift is that the clock is now ticking on the requirement to file BOI reports with FinCEN. Although the Treasury has extended deadlines, companies must ensure that they understand their specific filing deadlines and take prompt action to submit the necessary information.
Failure to comply with these reporting obligations can lead to significant penalties, including fines and possible legal action. Companies should ensure that they have accurate and complete information about their beneficial owners to meet these requirements.
The Bigger Picture: Transparency and Anti-Money Laundering Efforts
The Corporate Transparency Act is a key component of broader efforts to combat financial crime, including money laundering, corruption, and terrorism financing. By requiring businesses to disclose their true ownership, the CTA aims to make it harder for individuals to hide illicit activities behind anonymous shell companies.
This increased transparency is expected to enhance the effectiveness of financial institutions, regulators, and law enforcement agencies in identifying and addressing criminal activity. It also provides a level playing field for legitimate businesses by reducing the opportunities for unfair competition from illicit operations.
Conclusion: Stay Informed and Prepare for Reporting
The lifting of the injunction by the Fifth Circuit Court of Appeals is a pivotal moment for businesses subject to the Corporate Transparency Act. As the deadlines approach, it is crucial for companies to stay informed about their filing obligations and take the necessary steps to comply with the reporting requirements.
By adhering to the revised deadlines and filing accurate Beneficial Ownership Information reports, businesses can avoid penalties and contribute to the broader goal of financial transparency. For companies that may still be unsure about their specific obligations, consulting with legal or compliance experts can provide the guidance needed to navigate this complex landscape.
Stay ahead of the regulatory curve by acting promptly and ensuring that your company remains in full compliance with the Corporate Transparency Act.
Update: As of December 26, 2024, an appeals court has reinstated an injunction halting BOI enforcement. See our latest update.
