FinCEN Suspends BOI Reporting Obligations Pending Outcome of Rapid-Fire Legal Battle

by Prof. Robert Bloink and Prof. William H. Byrnes

The Corporate Transparency Act (CTA) requires businesses that are classified as “reporting companies” to report certain information about beneficial owners to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Most business entities are subject to new beneficial ownership information (BOI) reporting requirements. Those BOI reporting requirements are designed to combat money laundering, terrorism financing, drug trafficking and other crimes. They have, however, generated significant controversy and confusion since they were announced. As of today, a federal court in Texas has agreed with significant challenges to the BOI reporting requirements and issued a nationwide injunction to prevent FinCEN from enforcing their rules. That said, the legal situation is developing at a rapid-fire pace. Business entities that qualify as reporting companies should pay close attention to the status of the court’s injunction to ensure they remain in compliance with the FinCEN reporting mandate and avoid inadvertently incurring significant penalties.

Court Action Regarding Enforcement of the CTA

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction to prevent enforcement of the BOI reporting rules. The case was Texas Top Cop Shop, Inc., et al. v. Garland, et al. The court enjoined enforcement of the CTA, stating that the CTA itself is likely unconstitutional.

Previously, three other district courts had rejected plaintiffs’ challenges to the constitutionality of the CTA.

The Department of Justice appealed the district court’s decision on December 5, 2024. The next day, FinCEN released a notice stating that reporting obligations would not be enforced while the court’s injunction remained in place. While reporting companies will not be liable for their failure to report, they can continue to voluntarily provide the required information.

On December 11, 2024, the DOJ took additional steps to put pressure on the Texas district court. It filed a motion to stay enforcement of the injunction itself pending their appeal with the Texas district court. The DOJ also stated that it intended to seek relief directly from the Fifth Circuit if the district court had not granted that relief by December 13, 2024. On December 13, the DOJ did file that motion with the Fifth Circuit.

The Fifth Circuit quickly responded to the emergency motion and set a December 17 due date for the plaintiffs to respond to the motion. The government has until December 19 at noon to file a reply to that response. Because of this fast pace, it’s widely expected that the courts will issue a final ruling before the year-end compliance deadline.

BOI Reporting Requirements: Background and Deadlines

The BOI reporting obligations apply to nearly all domestic reporting companies. Reporting companies include corporations, LLCs (including single-member LLCs), limited partnerships and any other entity formed by filing a document with a Secretary of State in the United States. Reporting companies must identify and provide information about beneficial owners to FinCEN.

“Beneficial owners” include natural people who either 1) exercise substantial control over the company or 2) own or control 25% or more of the ownership interests in the company (whether directly or indirectly). When making the determination of whether an individual owns or controls 25% of the business, the individual's options, convertible instrument and other similar equity rights are treated as though they have been exercised.

For each beneficial owner, the company must provide (1) full legal name, (2) date of birth, (3) address, (4) identifying number from the individual's ID (driver's license or passport) and (5) a copy of the ID used. The reporting company itself must report the entity's (1) legal name, (2) any trade names or dba names, (3) principal place of business, (4) state of formation and (5) unique taxpayer ID number.

Absent the stay, entities created before January 1, 2024, must file their BOI reports before January 1, 2025. Entities created after January 1, 2024, have 90 days from the date their registration becomes effective to report the required information.

Starting in 2025, new entities will have only 30 days from the date of creation to complete the BOI reporting form. The 30-day clock starts to run on the date the entity has actual knowledge that its registration is effective, or the date when registration is published publicly.

Conclusion

The bottom line is that reporting companies should be prepared to comply with their BOI obligations despite the currently applicable enforcement stay. While it is completely possible that the U.S. Supreme Court will ultimately rule on the issue, the enforceability of the CTA mandate currently remains uncertain.

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