Injunction Temporarily Blocks Enforcement of Corporate Transparency Act BOI Reporting Requirement

12 Dec

Injunction Temporarily Blocks Enforcement of Corporate Transparency Act BOI Reporting Requirement

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Updated: December 6, 2024

On Tuesday, December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily blocking enforcement of the Corporate Transparency Act (CTA) and stayed the January 1, 2025 compliance deadline for the FinCEN Reporting Rule.

This injunction is applicable nationally, so all reporting companies are no longer required to comply with the January 1, 2025 filing deadline, pending further court action.

What is the CTA?

The Corporate Transparency Act (CTA), which went into effect on January 1, 2024, mandates that all U.S. businesses report information about the individuals who ultimately own or control them. The primary goal of the CTA is to combat illicit financial activities such as money laundering, terrorist financing, corruption, and tax fraud. The CTA requires certain companies (“reporting companies”) to file beneficial ownership information reports with the Financial Crimes Enforcement Network (FinCEN).

The deadline for existing reporting companies (in existence as of 12/31/2023)to file their initial reports is January 1, 2025. New companies (formed on or after 1/1/2024) must submit their BOI report within 90 days of formation or registration.

Texas Court’s Ruling on the Corporate Transparency Act

In Tex. Top Cop Shop, Inc. v. Garland, 2024 U.S. Dist. LEXIS 218294, the court determined that the CTA and its reporting rule likely went beyond Congress’s constitutional authority to regulate interstate and foreign commerce.

It is important to note that this ruling is not a final determination of the CTA’s constitutionality. Rather, this ruling temporarily halts enforcement while the case proceeds.

It is expected that this decision will be appealed. Congress and FinCEN may take additional action still this year.

Recommendations

The injunction applies nationwide, meaning that all companies subject to the CTA’s reporting requirements are now exempt from filing beneficial ownership reports until further notice.

There are two general approaches a business may decide to take:

‘Wait and See’. There is a temporary reprieve, so businesses can wait and see what happens. However, if the case is overturned, it is not clear how soon the reports would need to be filed and what type of ‘grace period’, if any, would be offered by FinCEN. This is the riskier approach, as there are significant penalties for failure to comply. Failure to comply with the reporting requirements set by FinCEN can result in significant penalties, including escalating fines of up to $500 per day, with a maximum penalty of $10,000 per violation, and even potential jail time for non-compliance.
File the report to ensure compliance with the CTA. This is the safest and most proactive route, especially businesses with complex reporting or multiple entities. It may take some time to gather and file the report, and there is no guarantee reports would be filed timely if the injunction is overturned. This is the approach we are recommending to clients, especially those with more than one entity or complex ownership, to ensure significant penalties, including potential jail time, are avoided.

Additional Warning: Be Careful for Fraudulent Websites

Be vigilant when filing any online reports. Many scam websites may attempt to mimic official government pages in order to deceive users. Always ensure that you are filing your BOI report through the official government website to avoid potential fraud.

Summary

Businesses should stay informed as the legal battle over the CTA continues. If you would like assistance, please contact your attorney or one of our Wisconsin Business Law Attorneys. The Initial Report Data outlines the information we will need to file the report on your behalf. Note we will need a copy of each owner’s Driver’s License (or other acceptable ID).

Schloemer Law Firm, S.C. has been in the business of helping Wisconsin businesses with all of their legal needs for over 95 years. We frequently assist Wisconsin businesses throughout the state, and specifically in the areas of Washington County, Dodge County, Ozaukee County, Fond du lac County, West Bend, Hartford, Slinger, Fond du Lac, Sheboygan, Menomonee Falls, and surrounding areas.