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Requirement to file Beneficial Ownership Reports
with FinCen on hold for the moment
In 2021, Congress enacted the Corporate Transparency Act (“CTA”), which creates a requirement to report beneficial ownership information (“BOI”) to the U.S. Financial Crimes Enforcement Network (“FinCEN”) as part of the U.S. government’s efforts to make it harder for bad actors to operate through shell companies or other opaque ownership structures. FinCEN is a bureau of the U.S. Department of the Treasury. Under the CTA, effective January 1, 2024, many companies in the United States had a required deadline of January 1, 2025 to report information to FinCEN (via its online portal) about themselves and their “beneficial owners”, which is defined as the individuals who (i) own or control 25% or more of a company or (ii) exercise “substantial control” over the company. Failure to comply with the CTA was subject to fines and potential criminal penalties for willful violations.
On December 3, 2024, in case brought by a private business seeking relief from the CTA’s requirements, a Federal District Court in Texas held that the CTA and its enabling rules are “likely unconstitutional” as being beyond the scope of power granted to Congress under the U.S. Constitution’s “commerce clause”. On that basis, the Court issued a nationwide preliminary injunction and holding that (1) the CTA is enjoined, (2) enforcement by FinCEN of the BOI reporting rules is enjoined, (3) the January 1, 2025 BOI reporting compliance deadline is stayed, (4) the government may not enforce the CTA or its rules and (5) companies who were otherwise required to file BOI reports need not comply with the reporting deadline pending further order of the Court. The case is Texas Top Cop Shop, Inc. v. Garland, et. al.
Effectively, this means that the requirement to make BOI filings is on hold, and companies need not make such filings. However, this is not a final disposition of the case, and it remains to be seen if and on what terms the government will appeal the District Court’s decision. As such, between now and December 31, 2024, companies who were required to make BOI filings should closely monitor developments regarding this case as further action by the District Court or any appeals from the District Court’s order.
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Please feel free to discuss this topic with your Ellenoff Grossman & Schole attorney or email CTA@egsllp.com.
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