Background
The Corporate Transparency Act (CTA) was enacted in 2021 to help law enforcement investigate money laundering and other illicit activity by requiring certain entities to file a beneficial ownership information (BOI) report with FinCEN. The intent behind the CTA is to help combat the use of anonymous shell entities and opaque ownership structures for criminal activities. Non-compliance with the CTA can result in fines of up to $10,000 per violation, and up to two years in prison.
On December 3, 2024, a Texas federal district court issued an injunction halting enforcement of the CTA's BOI reporting requirements. The injunction is a nationwide injunction, which differs from the limited injunction issued by an Alabama federal district court on March 1, 2024. The Alabama injunction has been appealed to the Eleventh Circuit Court of Appeals. The Texas injunction is expected to be quickly appealed to the Fifth Circuit Court of Appeals.
Potential Action Items
The injunction may be lifted by the judge that issued it and/or the Court of Appeals at any time. For example, the Eleventh Circuit could issue an opinion declaring the CTA constitutional before the Texas district court or the First Circuit hears any argument in the case pending in Texas. Upon such an opinion by the Eleventh Circuit, the Texas judge may immediately lift the injunction.
It is also unknown that if the injunction is lifted after the January 1, 2025, deadline if penalties would be assessed by FinCEN for late filings. As of this posting, FinCEN has stated:
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.
The above paragraph simply states taxpayers won't be subject to liability for failing to file BOI reports while the injunction is in effect. If the injunction is lifted, FinCEN has not provided any indication if extensions will be given or if penalties may be assessed retroactively. Because the injunction may be lifted at any time, taxpayers may wish to go ahead and file BOI reports to avoid potential penalties. By filing now, taxpayers can reduce the risk of rush filings and having to scramble to gather the necessary information to complete any necessary filings. At the very least taxpayers may want to have gather the information necessary to file the BOI report so if the injunction is lifted, taxpayers will be ready to file as quickly as possible an minimize potential penalties.
DISCLAIMER: The above is not accounting or legal advice. Taxpayers are advised to engage competent accounting and/or legal professionals to discuss their specific situations and legal/accounting needs.
· Copyright © Roger Lang 2024