Stop Filing those Beneficial Ownership Reports?
- The Corporate Transparency Act requires entities to file a beneficial ownership information report.
- A recent Texas Federal Court decision ruled the CTA is unconstitutional and suspended the reporting requirements nationwide.
- As a result, entities do not have to file the reports now, but they may want to because the decision will likely be appealed.
We have talked a lot about the Corporate Transparency Act (CTA) in this blog. You have probably heard a lot about it in different places. As you likely know, it is a federal law attempting to increase transparency in the financial system and combat illicit activity. The act requires certain businesses to report information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) – through a beneficial ownership information report (“BOIR”). However, a recent ruling from a Texas federal court has thrown a wrench into the implementation of the CTA, potentially impacting businesses across the United States. So let’s talk about that.
The Texas Ruling
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction suspending the enforcement of the CTA and its requirement to file a BOIR. The court found that the CTA is likely unconstitutional, exceeding Congress’s power under the Commerce Clause and the Necessary and Proper Clause of the Constitution.
The court reasoned that the CTA overreaches by requiring reporting from a broad range of businesses, including those that do not engage in interstate commerce or have any connection to financial crimes. The court also found that the CTA’s reporting requirements impose a significant burden on businesses, particularly small businesses, without a clear connection to a legitimate government interest. This was a surprising ruling, but one that’s likely welcomed by the business community.
The court also found that the CTA’s reporting requirements impose a significant burden on businesses, particularly small businesses, without a clear connection to a legitimate government interest. The court reasoned that the CTA’s reporting requirements are not necessary and proper for carrying out Congress’s enumerated powers under the Necessary and Proper Clause.
The Impact on BOIR Reporting Requirements
The injunction issued by the Texas court effectively suspends the requirement for businesses to report their beneficial ownership information to FinCEN. This means that businesses are not currently required to comply with the BOIR reporting requirements under the CTA. However, it is important to note that this ruling is preliminary, and the Department of Justice is expected to appeal the decision.
If the injunction is upheld on appeal, it could permanently invalidate the CTA and its BOIR reporting requirements. However, if the ruling is overturned, businesses may still be required to comply with the reporting requirements, potentially with retroactive effect.
Conclusion
The Texas court’s ruling on the CTA has created uncertainty for businesses regarding their BOIR reporting obligations. While the injunction currently suspends the enforcement of the CTA, the ultimate fate of the act and its reporting requirements remains to be seen. Businesses should continue to monitor the legal developments surrounding the CTA and consult with legal counsel to determine how the ruling may impact their specific circumstances.
So what should you do? We are probably going to file for our entities just to get it done and not worry about it moving forward. But I certainly understand people who do not want to file.
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