A federal court has temporarily blocked enforcement of the Corporate Transparency Act (CTA), pausing beneficial ownership information (BOI) reporting requirements just weeks before the January 1, 2025, deadline. Following the ruling from a Texas Court, the Justice Department filed a Notice of Appeal. While the matter is resolved, Denver area businesses are no longer required to file a report at this time. However, it is important to ensure necessary documents are ready should the injunction be overturned. To help clients, prospects, and others, WhippleWood CPAs has summarized the key details below.
Nationwide Injunction Blocks BOI Reporting
On December 3, in Texas Top Cop Shop, Inc. v. Garland, the Eastern District of Texas issued an injunction halting enforcement of the CTA, citing concerns about its constitutionality. The ruling temporarily prevents the Financial Crimes Enforcement Network (FinCEN) from requiring businesses to file BOI reports and affects millions of companies nationwide.
The CTA was introduced to combat financial crimes like money laundering and terrorism financing by increasing transparency into business ownership structures. However, critics argue the law infringes on privacy and imposes disproportionate compliance burdens on small businesses.
DOJ Appeals the Ruling
On December 5, the Department of Justice (DOJ) filed an appeal with the Fifth Circuit Court, seeking to overturn the injunction. The DOJ maintains that the CTA is essential for national security and law enforcement, enabling authorities to track illicit activities involving anonymous shell companies.
Legal experts suggest several possible outcomes. The appellate court could uphold the injunction, narrow its scope to the plaintiffs in the case, or stay the ruling entirely, which would allow FinCEN to enforce the reporting requirements. If the injunction is lifted, businesses may have to act quickly to meet the January 1 deadline.
Impact on Businesses
The court ruling has created significant uncertainty, particularly with the January 1, 2025, reporting deadline approaching. While enforcement is paused, the American Institute of Certified Public Accountants (AICPA) advises management teams to gather the required ownership information and be ready to file if the injunction is lifted.
As of November 2024, only 6.5 million of the estimated 32 million businesses subject to the CTA had submitted reports, highlighting significant compliance gaps. The injunction provides temporary relief, but staying prepared will help businesses avoid disruptions if reporting requirements are reinstated.
Frequently Asked Questions
- What is the Corporate Transparency Act (CTA)? The Corporate Transparency Act (CTA) is a federal law designed to increase corporate transparency and combat financial crimes. It requires reporting companies, including most LLCs, corporations, and similar entities, to disclose beneficial ownership information to the FinCEN.
- Are businesses required to comply with the January 1, 2025, deadline? Currently, businesses are not required to comply. The nationwide injunction has temporarily halted BOI reporting requirements, but this could change if the DOJ successfully appeals to the ruling.
- What happens if the injunction is lifted? If the appeal overturns the injunction, the BOI reporting requirements may be reinstated, and the January 1, 2025, deadline could still apply. Businesses would need to file promptly to avoid potential penalties.
- What information must be disclosed in a BOI report? Management must disclose the full name, birthdate, residential address, and identification number (e.g., driver’s license or passport) of each beneficial owner. A beneficial owner is generally defined as an individual who owns or controls 25% or more of the business or exercises substantial control over its operations.
- What steps should be taken while the injunction is in place? Businesses are encouraged to prepare by gathering the required ownership information in advance. Consulting with an accountant or legal advisor can help ensure readiness if the injunction is lifted and reporting requirements are reinstated.
Contact Us
The nationwide injunction has temporarily relieved businesses from BOI reporting requirements, but the legal situation remains fluid. By staying informed and preparing the necessary information, business owners can avoid last-minute complications. If you have questions about the information outlined above or need assistance with a tax or accounting issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.