The FinCEN Beneficial Ownership Report (BOI) has been the new tax requirement everyone this year is talking about. This requirement came out of the Corporate Transparency Act (CTA) as the latest federal effort to combat financial crimes like money laundering, terrorist financing, and corruption. Enacted as part of the Anti-Money Laundering Act of 2020, the CTA has been requiring certain U.S. businesses to report beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). And the deadline for all companies in existence prior to 2024 was just coming around the corner on January 1st, 2025. However, recent legal developments have, at least temporarily, upended the requirement to file this form.

On December 3, 2024, a federal court in the Eastern District of Texas issued a preliminary injunction blocking enforcement of the CTA nationwide. The court’s decision in Texas Top Cop Shop, Inc., et al. v. Garland, et al. has significant implications for companies facing the CTA’s January 1, 2025, BOI reporting deadline. For now, compliance with the CTA is voluntary, but if you choose not to file, you must keep yourself informed as the legal battle continues to not miss any requirement to file later.

Understanding the Preliminary Injunction

In Texas Top Cop Shop, the court found that the CTA was likely unconstitutional, issuing a nationwide injunction that halts enforcement of the statute and its associated regulations. This decision follows a similar ruling earlier in 2024 from a federal court in Alabama, though the Alabama ruling applied only to the plaintiffs in that case.

The court’s order in Texas Top Cop Shop explicitly states that “reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline.” This preliminary injunction temporarily suspends the federal government’s authority to enforce BOI reporting requirements. Importantly, the injunction is not a final determination on the constitutionality of the CTA. It represents the court’s preliminary view that the plaintiffs are likely to succeed in proving the statute unconstitutional.

The Legal Path Ahead

The preliminary injunction does not mark the end of the legal process. Next steps could include:

1. Summary Judgment Hearings: These hearings would determine the CTA’s constitutionality in a more definitive manner.
2. Appeals: The U.S. Department of Justice (DOJ), on behalf of the Department of Treasury, has already filed a notice of appeal. This could lead to a review by the Fifth Circuit Court of Appeals, which might issue a stay of the injunction or overturn it entirely.
3. Supreme Court Review: If the case continues to escalate, the U.S. Supreme Court may ultimately decide the CTA’s fate.

The DOJ has signaled its confidence in the CTA’s constitutionality, pointing to favorable rulings from other courts, including the Eastern District of Virginia and the District of Oregon. These courts upheld the statute, emphasizing its critical role in combating illicit financial activity.

FinCEN’s Current Position

In response to the injunction, FinCEN has stated that it will comply with the court’s order, stating in a news blast: “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.”

As a result:

• Compliance Is Voluntary: Companies are not currently required to file BOI reports and will not face penalties for failing to do so while the injunction is in place.
• Voluntary Filings Permitted: Reporting companies may still choose to file BOI reports. This option might appeal to businesses aiming to avoid year-end timing issues or potential complications if the injunction is lifted.

Implications of Voluntary Compliance

While compliance with the CTA is currently voluntary, businesses should consider the following factors when deciding whether to file BOI reports:

1. Preparation for Potential Reinstatement: If the injunction is lifted, reporting companies could face a tight deadline to comply. Voluntarily filing now may reduce the risk of future non-compliance.
2. Avoiding Uncertainty: The CTA requires BOI reports to be filed within 90 days of certain triggering events, such as company formation. Companies that voluntarily file now can avoid confusion or retroactive compliance issues if the reporting requirement is reinstated.
3. Demonstrating Good Faith: Early compliance might demonstrate a proactive approach to regulatory obligations, potentially benefiting companies in dealings with regulators or investors.

Who Should Still File FinCEN BOI?

Companies evaluating whether to voluntarily comply with the CTA should:

• Filing New Companies Proactively: If you have a new company it may be a good idea just to file anyways, because if a dispute later comes up then the partners may not be willing to share information.
• Information Return Only: If your company does not have a complicated ownership structure, then it may be a relief just to file now and not have to worry if it is an issue in the future. Sometimes news on injunctions are more widely publicized than when laws get overruled later.
• Gathering Information In Advance: Even if you don’t want to file, it can be a good idea to collect the required data, including beneficial owners’ names, dates of birth, addresses, and identification numbers, and ID images. This way you are ready to file if the rule is reinstated with a short filing timeline.
• Don’t File Complex or Uncertain BOIs: For some BOI filers who have been unable to obtain the ID documents for the beneficial owners of the companies this is a welcome relief. If the ownership structure is unclear or there is risk that a filing would be incomplete, then it would be better not to file while it is voluntary now.
• When Closing a Company: Companies that have dissolved may want to file the FinCEN BOI report as part of their dissolution, because it may still be required later. Most companies at the time of dissolutions I’ve found want to get all potential compliance issues squared away.

The Broader Impact of the Injunction

The Texas Top Cop Shop ruling reflects broader debates about balancing privacy concerns with regulatory transparency. Critics of the CTA argue that its reporting requirements infringe on constitutional rights and impose unnecessary burdens on small businesses. Proponents, however, emphasize its importance in combating financial crimes that threaten national and global security.

As the case progresses, the outcome could shape not only the future of the CTA but also broader federal efforts to regulate corporate transparency.

For now, compliance with the CTA’s BOI reporting requirements is voluntary due to the nationwide preliminary injunction issued in Texas Top Cop Shop. While the legal landscape remains uncertain, businesses should remain vigilant and prepared. The federal government’s appeal and potential subsequent legal rulings may reinstate the reporting requirements and if this is overlooked it could cause potential issues for companies that miss filing.