Last month, my column warned that businesses were running out of time to file Beneficial Ownership Information (“BOI”) reports with the Financial Crimes Enforcement Network — a unit of the Department of the Treasury known as FinCEN.
This month, my column is supposed to be about gifting.
So, let me tell you about a recent gift from the federal courts. Your business does not have to file the BOI with FinCEN. Not yet, anyway. Thanks to a recent federal court ruling, you can ignore my last column.
On Jan. 1, 2024, the federal Corporate Transparency Act became law, requiring more than 30 million small- and medium-sized businesses to report ownership information to the federal government by Jan. 1, 2025.
Failure to timely file the report could result in fines of at least $500 per day, up to $10,000 maximum, and two years’ jail time. Despite the bill that created CTA being bipartisan, and despite its admirable goal to eliminate anonymity in business ownership in order to prevent money laundering and terrorist activities, some were outraged. Lawsuits ensued, and two of note resulted in judgments declaring CTA unconstitutional.
In March of this year, an Alabama court declared CTA unconstitutional. FinCEN was quick to appeal and issued a notice that it would continue to implement and enforce the the act, except as to the specific plaintiffs in the Alabama case. So, except for that relatively small group of plaintiffs, businesses were still required to file the BOI statements by year-end.
On Dec. 3, 2024, a federal district court in Texas issued a nationwide preliminary injunction, temporarily blocking enforcement of CTA and its reporting rule, on the basis that it is an unconstitutional overreach by Congress.
FinCEN responded by saying that reporting companies were not required to file beneficial ownership information with FinCEN and were not subject to liability if they fail to do so while the order remained in force. “However, reporting companies may continue to voluntarily submit beneficial ownership information reports,” the agency stated.
Not unexpectedly, on Dec. 5, 2024, FinCEN also filed an appeal of the Texas ruling.
Despite FinCEN’s “we won’t enforce” statement, the Department of Justice filed an emergency motion with the U.S. Court of Appeals for the Fifth Circuit on Dec. 13, 2024, seeking to stay the Texas preliminary injunction pending appeal. The government has asked for a ruling by Dec. 27, 2004. The fifth circuit court, of its own accord, accelerated the briefing schedule and final responses were due to the last week (Dec. 19). It’s likely the fifth circuit will issue a ruling before the end of the year.
Such a stay, if granted this month, could result in reporting entities being required to file their BOI report on short notice by the Jan. 1 deadline. Alternatively, FinCEN could adjust the deadline, giving reporting entities more time to comply with reporting obligations.
Adding to the fun, the new White House administration likely will bring a change in the government’s view of the CTA. If the government abandons its appeals (in the Alabama and Texas cases), CTA dies altogether, and it’s back to Congress to fashion a new law.
Businesses that would have been required to file Beneficial Ownership Information reports now have, in essence, three options:
1. Do nothing, don’t file. Wait until the court battles are over and there is a definitive rule. You may save yourself some time and unnecessary gathering of personal information if CTA is ultimately declared unconstitutional. You may also be scurrying to comply at the last minute if the injunction is stayed.
2. Get ready to file. Get all information together and be ready to file quickly, but don’t file until either the stay is granted, or the litigation ends, and either the law is declared unconstitutional or FinCEN requires the filing in the same manner or in some modified form. If it’s a short deadline, you’ll be ready to go.
3. Go ahead and file the BOI. You’ll get it over with, won’t be faced with a short deadline, and it’s information the government has anyway (just not perhaps in connection with the name of your business entity).
There is no easy answer here. So maybe this isn’t such a gift after all?
Teresa J. Rhyne is an attorney practicing in estate planning and trust administration in Riverside and Paso Robles, CA. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I)” and “Poppy in The Wild.” You can reach her via email at Teresa@trlawgroup.net
