Back and Forth for Beneficial Owners
At the beginning of 2024, businesses around the country began preparing for and grappling with a massive new federal reporting scheme. Under the Corporate Transparency Act and related regulations (the “CTA”), all non-exempt entities must file reports on their beneficial owners (“BOI Reports”), and keep such filings up to date, according to the timelines set forth in the CTA. See https://bit.ly/3Dz70Aj for our previous published primer on the CTA and BOI Reports.
Notably, the penalties for failing to file a BOI Report as required by the CTA can result in civil penalties of up to $591 per day for each day a violation continues, up to $10,000 in criminal fines, and even up to two years in prison. Even more concerning, it has been estimated that as of December 1, 2024, FinCEN, the agency responsible for administering this new program, had received less than one-third of the expected BOI Reports, meaning that millions of businesses were non-compliant.
Numerous challenges have been filed to the CTA’s requirements. On December 3, 2024, the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. vs. Garland, No. 4:24-CV-478 granted a preliminary injunction, relieving business all over the nation from the requirement to file their BOI Reports. This injunction was granted on the basis that the Court found that the CTA’s requirements were likely unconstitutional under the Commerce Clause and Necessary and Proper Clause.
However, in a surprising turn of events, on December 23, 2024, as requested by an emergency motion from the Department of Justice, the Fifth Circuit Court of Appeals placed a stay on the preliminary injunction. This sudden change left many businesses, still confused about the requirements and of this new scheme, scrambling to get BOI Reports filed by January 13, 2025 (the updated deadline subsequently set by FinCEN).
However, in yet another surprising twist, on December 26, 2024, the Fifth Circuit Court of Appeals vacated the stay on the preliminary injunction. In other words, the Court reversed its prior decision, the preliminary injunction now stands, and no BOI Reports are required to be filed for the time being.
The current status quo does not require any filings under the CTA. However, the Fifth Circuit has set this case for expedited briefing and oral arguments. As such, the filing requirement could be reinstated, so businesses should remain attentive. Despite the injunction, some businesses subject to the CTA have elected to continue to prepare their BOI reports to ensure readiness in the event that filings become required again.
