FEDERAL DISTRICT COURT HALTS BOI REPORTING

Date: December 4, 2024

Key Information for Business Owners

A recent ruling from a federal court has temporarily halted one of the most significant compliance requirements for businesses in the U.S. On December 3, 2024, a Texas federal district court issued a preliminary nationwide injunction against the enforcement of the Corporate Transparency Act (CTA) and its related regulations. While business owners can take a moment to relax, the matter is still in flux.

Here’s what you should know about this ruling and its potential implications for your business.

Understanding the Corporate Transparency Act

The CTA, established in 2021, mandates that most U.S. business entities disclose beneficial ownership information (BOI) to the Treasury Department. The goal of this legislation is to address issues like money laundering and tax evasion; however, many business owners have raised concerns regarding the administrative load and privacy risks involved.

Details of the Court’s Decision

The court’s preliminary injunction prevents the enforcement of the CTA, which includes the impending BOI reporting deadline set for January 1, 2025. The injunction, based on the Administrative Procedure Act (APA), effectively stops the Treasury Department and the Financial Crimes Enforcement Network (FinCEN) from enforcing any reporting requirements or penalties related to noncompliance.

Key Points from the Ruling:

No Immediate Reporting Obligation: Businesses are currently exempt from submitting BOI reports by the original deadline.

Suspension of Penalties: FinCEN cannot impose penalties for intentional noncompliance during this period.

CTA Remains Law: The CTA itself remains in place; only its enforcement is currently on hold.

What’s Next?

This court ruling is not the end of the matter. Here’s what may occur:

Appeals Process: The government is likely to challenge this decision in the U.S. Court of Appeals for the Fifth Circuit, with the possibility of further escalation to the Supreme Court.

Reinstatement Possibility: If a higher court overturns the injunction, the reporting obligations could be reinstated, potentially with minimal notice.

Continued Uncertainty: Businesses should stay vigilant and monitor developments closely.

Recommended Actions for Business Owners

Despite this temporary reprieve, business owners should remain proactive regarding potential future compliance mandates. 

Consider the following steps:

Postpone Filing: There is no current obligation to meet the January 1, 2025 BOI reporting deadline, but stay alert to court updates to avoid surprises.

Seek Legal Guidance: Consult with legal professionals to gauge how the CTA might affect your business if enforcement resumes. Being informed now can prevent complications later.

Prepare for Compliance: Should the injunction be lifted, businesses may need to act swiftly to comply with reporting requirements. Think about establishing internal compliance processes, such as identifying beneficial owners and collecting necessary documentation.

Stay Updated: This situation emphasizes the necessity of keeping informed about regulatory changes that may impact your business. Subscribing to updates from trusted sources can help you navigate compliance issues effectively.

Questions?

The suspension of the Corporate Transparency Act enforcement underscores the ongoing discussions surrounding the balance between fighting financial crime and safeguarding business interests. While this court ruling offers businesses additional time, it is crucial to be ready for potential future reporting requirements.

We will continue to keep you updated on any developments regarding CTA compliance. 

Guide to Filing the Beneficial Ownership Information (BOI) Report with FINCEN

Filing the Beneficial Ownership Information (BOI) Report with the Financial Crimes Enforcement Network (FinCEN) is a regulatory requirement aimed at increasing corporate transparency. This guide explains the process, key requirements, and tips for ensuring compliance with the Corporate Transparency Act (CTA).

What Is a BOI Report?

The BOI report identifies the beneficial owners of certain business entities. Beneficial owners are individuals who:

1. Own at least 25% of the entity’s equity or voting rights.

2. Exercise substantial control over the entity through decision-making authority.

Who Must File the BOI Report?

Entities Required to File:

• Corporations, LLCs, and other similar entities formed or registered to do business in the U.S.

• Small and medium-sized businesses not exempt under the CTA.

Exempt Entities:

• Publicly traded companies.

• Financial institutions subject to strict federal reporting requirements (e.g., banks).

• Large operating entities with more than 20 employees, $5M+ in revenue, and a physical U.S. presence.

Information Required in a BOI Report

Each BOI report must include:

1. Company Information

• Legal name of the entity.

• Current address of the entity’s principal office.

• State of incorporation or registration.

• Employer Identification Number (EIN), if applicable.

2. Beneficial Owner Information

For each beneficial owner, you must provide:

• Full legal name.

• Date of birth.

• Current residential or business address.

• A unique identifier, such as:

• Social Security Number (SSN).

• Passport number (if a foreign owner).

Filing Timeline

• Effective Date: January 1, 2024.

• Existing Entities: Must file their initial BOI report by January 1, 2025.

• New Entities (formed/registered after January 1, 2024): File within 30 days of formation or registration.

• Updates: File any changes to beneficial ownership within 30 days of the change.

How to File the BOI Report with FinCEN

Step 1: Gather Required Information

Compile details about your company and beneficial owners to ensure accurate reporting.

Step 2: Access FinCEN’s Reporting System

• Visit FinCEN’s online portal (instructions will be provided closer to the reporting date).

• Log in or create an account to begin your filing.

Step 3: Complete the Online Form

Fill in all sections of the report, including:

1. Business information.

2. Personal details of beneficial owners.

Step 4: Review and Submit

Double-check the information to ensure it is complete and accurate. Submit the report and keep confirmation of submission for your records.

Step 5: File Updates as Needed

Monitor any changes to ownership or company details and file updated reports promptly.

Penalties for Non-Compliance

Failure to file or inaccuracies in the BOI report can result in:

• Civil penalties: Up to $500 per day of non-compliance.

• Criminal penalties: Fines up to $10,000 and/or imprisonment for up to 2 years.

Best Practices for Compliance

1. Establish an Internal Compliance Process: Assign a compliance officer or team to oversee BOI reporting.

2. Maintain Detailed Records: Keep all supporting documents about ownership structures and beneficial owners.

3. Educate Beneficial Owners: Ensure they are aware of the requirements and provide accurate information.

4. Use Legal or Compliance Experts: Consult professionals to navigate exemptions, reporting nuances, or complex ownership structures.

5. Stay Updated on Regulations: Monitor FinCEN guidance for updates on the filing process.

Filing the BOI report with FinCEN is a straightforward but critical process to ensure compliance with the Corporate Transparency Act. By proactively gathering the necessary information, using FinCEN’s filing tools, and staying on top of deadlines, your business can avoid penalties and contribute to greater financial transparency.

If you need additional help navigating BOI requirements or filing reports, feel free to reach out for tailored guidance!