Federal Appeals Court Reinstates Injunction on BOI Reporting Enforcement

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In a whiplash ruling, the Fifth Circuit Court of Appeals on December 26, 2024, reversed a ruling made just three days earlier and reinstated an injunction against enforcement of the Corporate Transparency Act’s (CTA) Beneficial Owner Information (BOI) reporting requirement for small businesses.

This means that the January 1, 2025, deadline for filing a BOI report – and the extended deadlines announced by the Treasury Department after the earlier court rulings – are again on hold. Businesses may voluntarily file BOI reports, but they are not required to do so for the time being.

The Fifth Circuit’s action is the latest in a rapid-fire series of legal rulings and legislative maneuvers surrounding the BOI filing requirement. In short:

• The BOI was established by the Corporate Transparency Act of 2020. January 1, 2025, was later set as the deadline for some 32 million small businesses nationwide to report information about their ownership to the government.
• On March 1, 2024, the U.S. District Court of Northern Alabama ruled that the Corporate Transparency Act was unconstitutional. However, the ruling only applied narrowly to 65,000 members of the plaintiff organization in that case.
• On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued an injunction prohibiting the U.S. Treasury Department from enforcing the BOI requirement. This injunction applied nationwide.
• On December 21, 2024, a legislative attempt to include a 1-year BOI deadline extension to a government spending bill failed when it was stripped out of the bill at the last minute.
• On December 23, 2024, the Fifth Circuit Court of Appeals issued a stay on the nationwide injunction and reinstated the BOI report filing requirement. Recognizing that many companies would be unable to meet the January 1, 2025, filing deadline, the Treasury Department announced new deadlines.
• On December 26, 2024, a different panel of the Fifth Circuit Court of Appeals issued an order vacating the Court’s December 23 order granting a stay of the preliminary injunction. Accordingly, as of December 26, 2024, the injunction issued by the Texas District Court is in effect, and reporting companies are not currently required to file beneficial ownership information with FinCEN. Explaining the reversal, the Court stated it was reinstating the lower court’s injunction “in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments,” referring to the panel of judges who will decide the appeal.

The rulings in Alabama and Texas that halted enforcement of the Corporate Transparency Act (CTA), which includes the BOI reporting provision, centered around the constitutionality of the law, with one court calling it “quasi-Orwellian.”

The case is still being litigated, but in its first order that briefly reinstated the BOI provision, the Fifth Circuit wrote that “the government has made a strong showing that it is likely to succeed on the merits in defending the CTA’s constitutionality.”

Should You File a BOI Now?

Companies may file BOI reports with FinCEN voluntarily. If you haven’t already filed, we recommend that you consult with legal counsel to determine whether you should file.

What is the Corporate Transparency Act?

Passed by Congress in late 2020 and enacted by a veto override, the CTA is intended to help national security, intelligence and law enforcement agencies fight money laundering, the financing of terrorism and other illicit activity and bring the U.S. into compliance with international anti-money laundering standards.

The legislation’s chief sponsor (now-former) Rep. Carolyn Maloney, D-NY, characterized the measure as addressing “malicious actors who have been using shell corporations” to hide money. The Corporate Transparency Act has been criticized for having regulations so broadly written that it will ultimately apply to hundreds of thousands of small businesses.

In fact, the CTA was written specifically to apply to smaller businesses. Large companies – defined as having more than 20 employees, more than $5 million in consolidated gross receipts and a physical place of business in the U.S. – are among several entities that are exempt from the BOI reporting requirement.

Consequently, only certain companies with 20 or fewer employees, less than $5 million in gross receipts, and a physical location in the U.S. are subject to the BOI reporting requirement.

BOI reports are made to the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department that collects and analyzes information about financial transactions to combat domestic and international money laundering, terrorist financing and other financial crimes. Reports are made only once through a portal on the FinCEN website and then updated as needed when a company’s ownership information changes.

FinCEN began accepting BOI reports on January 1, 2024. Corporations (S corporations and C corporations), LLCs and other entities already existing before that date were given another year – until January 1, 2025 – to file their first BOI reports. However, entities formed after January 1, 2024, were required to file their first BOI reports within 30 days of registration.

What Kind of Information Must Companies Report?

Among other provisions, the CTA requires affected companies to report certain information about any person who:

• Exercises substantial control over the company, or
• Owns or controls at least 25% of the ownership interests of the company

Companies that must report BOI information include:

• Domestic corporations, LLCs and other entities registered under U.S. state law
• Foreign corporations, LLCs or entities formed under foreign law that are registered to do business in any U.S. state

There are 23 types of entities exempt from BOI reporting, including:

• Banks, credit unions and tax-exempt entities registered with the IRS.
• Large operating companies with more than 20 full-time employees, more than $5 million in sales, and a physical office in the U.S. Subsidiaries of large companies that are exempt from BOI reporting are also exempt.

Reporting companies must provide the following information:

• Legal name of the company
• Trade names (i.e., DBA)
• Street address of principal place of business in the U.S.
• Jurisdiction of formation or registration
• Tax ID# of the company

Beneficial owner information to be provided includes:

• Individual’s name, date of birth and residential address
• Unique ID# from acceptable ID document and copy of ID (U.S. driver’s license, U.S. passport or other government-issued ID)

More information is available on FinCEN’s Beneficial Ownership Information web page.

It is important to note that the responsibility for BOI reporting rests with the company, not the individual. Penalties for noncompliance are steep, including $500 a day, up to $10,000 in fines, and up to two years in jail.

Contact Us

We will provide updates on further legal developments regarding the BOI reporting requirement and how your company may be affected.

In the meantime, if you have not yet filed a BOI report, we recommend seeking guidance from your legal counsel. While JLK Rosenberger does not provide direct assistance with BOI compliance, we can connect you with trusted resources to guide you in the right direction.

For additional information, call 949-860-9902 or click here to contact us. We look forward to speaking with you soon.