Court Halts BOI Reporting Requirements: What It Means for Your Business and How to Prepare
The information in this post is accurate as of December 9, 2024. This is a rapidly changing topic. Please verify that this information has not changed between when this post was written and the time that you are reading it.
On December 3, 2024, a federal district court issued an order halting the enforcement of the Corporate Transparency Act (CTA) and its accompanying Beneficial Ownership Information (BOI) reporting rules. The ruling came in the case Texas Top Cop Shop, Inc. vs. Garland, and the court’s injunction has significant implications for businesses and accounting professionals.
What Is the Corporate Transparency Act (CTA)?
Enacted in 2021 as part of a broader anti-money-laundering initiative, the CTA requires businesses to disclose detailed information about their beneficial owners—individuals who ultimately own or control a company. This disclosure was set to go into effect on January 1, 2025, with penalties for noncompliance, including hefty fines and potential prison sentences.
The BOI rule would require companies to report ownership data to the Financial Crimes Enforcement Network (FinCEN), the agency tasked with enforcing the CTA. This regulation was designed to increase transparency in corporate ownership to combat money laundering, terrorist financing, and other illicit activities. However, the court's ruling has now put this requirement on hold.
Court’s Ruling: Constitutional Concerns
The court’s decision is rooted in constitutional concerns. It found that the CTA may be unconstitutional because it extends beyond the powers granted to Congress under the Commerce Clause and the Necessary and Proper Clause of the U.S. Constitution. The court described the legislation as "quasi-Orwellian" and noted that its focus on regulating domestic corporate structures does not align with the national security or foreign affairs concerns that typically justify broad federal powers.
While the case is still ongoing, the court determined that the plaintiffs, including the National Federation of Independent Business (NFIB), presented a significant constitutional violation, warranting a nationwide injunction. This means that, for the time being, businesses do not need to comply with the BOI reporting deadline of January 1, 2025.
What Does This Mean for Your Business?
If you’re a business owner or an accountant assisting clients, this ruling provides temporary relief from the CTA’s reporting requirements. However, there are a few key points to keep in mind:
Temporary Halt on Reporting: The injunction prevents FinCEN from enforcing the BOI reporting rule. This means that businesses do not need to submit BOI reports at this time.
Prepare for Possible Future Compliance: While the injunction is in place, it is essential to remain prepared. The court has not issued a permanent ruling, and the case may continue through the appeal process. If the ruling is overturned or modified, businesses will need to file their BOI reports promptly.
Gather Necessary Information: Although you do not need to file your BOI report right now, it is a best practice to gather the required information from your clients and ensure you are ready to file if the injunction is lifted. The AICPA has emphasized the importance of preparing for any changes, as the injunction could be reversed at any point.
Stay Updated: The Financial Crimes Enforcement Network (FinCEN) is reviewing the court’s order, and further guidance may be issued. It’s important to stay informed about any developments and how they could affect your business or clients.
Recommendations for BUSINESS OWNERS
The American Institute of CPAs (AICPA) has expressed support for businesses impacted by the CTA’s reporting requirements. Melanie Lauridsen, AICPA’s Vice President of Tax Policy & Advocacy, highlighted that the injunction could provide much-needed relief for small businesses. The AICPA is advising businesses to continue gathering beneficial ownership informationand be ready to comply with reporting requirements if the situation changes.
What’s Next?
For now, businesses are not required to comply with the CTA’s BOI reporting requirements. However, the government has filed an appeal, and the case will likely progress through the courts, possibly reaching the Fifth Circuit. This means businesses and CPAs must remain vigilant for any updates or new rulings that could affect compliance deadlines.
In the meantime, businesses should continue to gather the necessary ownership information and prepare for potential future reporting. The AICPA has created a BOI reporting resource center to help guide CPAs and businesses through this complex situation.
As the case unfolds, we will continue to monitor the situation closely and provide updates as necessary. In the event that the injunction is lifted, we will assist you in ensuring your business remains compliant with all reporting requirements.
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