A Pause on Beneficial Ownership Informational Reporting

By Stanley Rose December 6, 2024

In articles we published in December 2022 and December 2023, we explained the creation of a new federal registry of direct and indirect entity ownership. With it, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) demands that owners of most entities provide very detailed, personal information regarding their ownership of domestic entities. The filing requirements are referred to commonly as either “Beneficial Ownership Reporting” (BOI) or by the name of the law that created the rules: the “Corporate Transparency Act” (CTA).

An overview of those requirements can be found in our previous articles and will not be reproduced here. Instead, the purpose of this article is to share news of an injunction that, as of December 2024, appears to suspend the requirement for business owners to comply with this filing requirement.

Previous court battles

The BOI requirements unleashed a number of lawsuits questioning the legality of the registry. In a couple cases, the government prevailed. In March of 2024, a district court in Alabama concluded that Congress exceeded its power when it created the CTA. While some saw this as a victory, most agreed that the decision applied only to those particular plaintiffs and possibly potential filers within that court’s district – but not the entire country.

The most recent court case

By contrast, in the first week of December 2024, a U.S. District Court in Texas accommodated the request of an injunction and did so in a manner intended to apply the pause nationwide. (This appears to have occurred somewhat comically, as the government argued that because one of the plaintiffs, a membership organization, has so many members spread across the country, an injunction in the December case could be construed as nationwide stay – a point apparently made to prevent the court from making a decision so drastic. The court, though, called the government’s bluff and removed all doubt by stating that the injunction was intended to be comprehensive and applicable nationwide.)

The court’s decision (Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States (E.D. Tex., No. 4:24-cv-00478)) is hardly svelte at nearly 80 pages of spellbinding reading, but it doesn’t represent the end of BOI arguments, and it doesn’t even represent the end of the related lawsuit. What the injunction means is this:

1. The court was convinced that the plaintiff’s lawsuit (arguing that Congress exceeded its authority by creating the CTA, and only states have the authority to track/register entities) is strong enough that the plaintiffs might prevail when their case is tried in the future.
2. As a result of that belief, it is proper to suspend enforcement of the CTA in the meantime – starting now. The injunction accomplishes that suspension – it hits the “pause” button while the question of the CTA’s legality can be sorted out in court.

In other words, as significant as this injunction is, it is just one step of many – one battle in a relatively young war. The government undoubtedly will appeal this injunction, and the actual trial in the case brought by the plaintiffs has not yet begun.

Conclusion

So, what does this injunction mean for a business owner considering whether to comply with the CTA rules or forgo them? Well, following the CTA law (or any law, for that matter) is a binary proposition: One must either comply with the rules or not, even when a law’s propriety has been questioned through proper channels (like a lawsuit). The default answer to that binary proposition (other than for those to whom a prior lawsuit’s victory directly applied) has been that the law exists, and it must be followed until and unless something changes. Many have concluded that this most recent court case, though, changes that setting to one where the CTA and its BOI reporting requirements do not need to be followed until its validity is confirmed (the law exists, but enforcement of it is stayed). But what if the injunction is reversed or the court eventually finds that the CTA is valid? What of the filings that should have been made, but weren’t, because of a temporary injunction?

Many of our clients and colleagues will be asking us how to proceed in light of the recent injunction, but we must note that, unlike the IRS division of the Treasury Department, this requirement involving Treasury’s FinCEN division has nothing whatsoever to do with taxes or accounting. While we are not trying to be glib about this, we as accountants would be driving outside of our lane a bit by providing guidance related to what really is a legal matter. We share news of developments like this because we know it is of interest to our clients and other readers, and we want you to be informed. However, we suggest that you consult with legal counsel before deciding on any course of action (or inaction) related to this injunction or BOI filing requirements in general.

For more information, please contact Stan Rose or your BNN tax advisor at 800.244.7444.