With less than a month to go before the Corporate Transparency Act’s (CTA) Beneficial Ownership Information (BOI) reporting deadline, a U.S. District Court ruled that the requirements exceed Congress’s authority under the Commerce Clause of the Constitution.
What the court ruling means for reporting
The court issued a preliminary injunction blocking the implementation of the CTA, which would have required millions of U.S. business entities to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) by Jan. 1, 2025. This injunction temporarily puts the reporting obligation on hold, as legal challenges question the scope and constitutionality of the Act’s requirements.
While the government defended the CTA as a necessary measure within Congress’s right to regulate interstate and foreign commerce, the court determined that the CTA infringes upon states’ rights to regulate businesses and cannot compel businesses to disclose ownership information solely for law enforcement purposes.
With the injunction in place, businesses are currently exempt from the reporting obligation, but the final outcome of the case remains uncertain and will have important implications for future compliance.
What is the CTA?
The CTA, which came into effect on Jan. 1, 2024, is designed to increase transparency in the ownership of business entities in an effort to tamp down illicit financial activity. By requiring privately-held corporations, limited liability companies, and limited partnerships to report their beneficial owners, the law aims to curb money laundering, tax evasion, and other financial crimes.
The CTA requires both domestic and foreign entities operating in the U.S. to file detailed reports with FinCEN. However, some businesses—such as large public companies and regulated entities like banks and insurance firms—are exempt.
Failure to comply with the reporting requirements was initially set to result in penalties of up to $500 per day, with a maximum fine of $10,000. As the legal case continues, businesses should remain aware of the potential for these requirements and subsequent penalties to be reinstated.
Read more background on the CTA.
What this means for businesses
For now, businesses that have not yet submitted their BOI to FinCEN are not obligated to do so, and they will not face penalties for failing to report. However, this injunction does not affect businesses that have already submitted their information, and that situation remains unresolved.
As the case continues, future rulings may lead to the reinstatement or modification of the CTA’s provisions. Therefore, business owners should stay ahead of the curve and consult with an advisor to understand how any developments may affect their compliance.
What businesses should do next
We are here to keep you informed and help you navigate these changes; however, Erock Tax + Financial Planning is not a legal advisory firm, and as such, recommends that all our clients also consult with their attorney to ensure full compliance.
If you have any questions or need guidance, don’t hesitate to reach out at (781) 247-5569.
