In our earlier report on Beneficial Ownership Information reporting, Inc413 explored the complexities of the Corporate Transparency Act (CTA) and its implications for small businesses. Since then, a Texas federal court ruling has declared the law unconstitutional.
This has created a wave of uncertainty around the enforcement of beneficial ownership information (BOI) reporting requirements.
While the government has appealed the decision, the ruling has temporarily halted enforcement, leaving many business owners questioning whether they should file or wait for further developments.
To help clarify the issue, the Inc413 team has created a timeline outlining the sequence of events and where things currently stand, providing business owners with a clear understanding of the situation.
Beneficial Ownership Reporting Timeline
January 1, 2024
CTA Reporting Requirements Take Effect
The Corporate Transparency Act (CTA) mandates that certain entities, including corporations and limited liability companies (LLCs), report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). This measure aims to enhance corporate transparency and combat illicit financial activities.
March 1, 2024
Alabama Court Declares CTA Unconstitutional
In National Small Business United et al v. Yellen, U.S. District Judge Liles C. Burke of the Northern District of Alabama rules the CTA unconstitutional, stating that it exceeds Congress’s legislative authority. The ruling enjoins enforcement of the CTA against the plaintiffs in this case.
September 20, 2024
Oregon Court Upholds CTA in Firestone et al v. Yellen
The U.S. District Court for the District of Oregon denies a motion for a preliminary injunction against the CTA, affirming its constitutionality and allowing its enforcement to proceed.
October 24, 2024
Virginia Court Denies Injunction in Community Associations Institute v. Yellen
The U.S. District Court for the Eastern District of Virginia also denies a motion for a preliminary injunction challenging the CTA, permitting its continued enforcement.
December 3, 2024
Texas Court Issues Nationwide Injunction
In Texas Top Cop Shop, Inc. v. Garland, U.S. District Judge Amos Mazzant of the Eastern District of Texas grants a nationwide preliminary injunction, halting the enforcement of the CTA and describing it as “likely unconstitutional.”
https://www.reuters.com/legal/government/texas-judge-blocks-anti-money-laundering-laws-enforcement-nationwide-2024-12-04/
December 6, 2024
Department of Justice Appeals Texas Ruling
The U.S. Department of Justice files an appeal to the Fifth Circuit Court of Appeals, seeking to overturn the nationwide injunction issued by the Texas court.
https://www.wsj.com/articles/treasury-appeals-court-ruling-blocking-corporate-ownership-registry-drive-4f10c050
December 6, 2024
FinCEN Announces Voluntary Reporting
Following the Texas court’s injunction, FinCEN states that while it believes the CTA is constitutional, it will comply with the court order. As a result, reporting companies are not currently required to file beneficial ownership information but may do so voluntarily during the injunction period.
This timeline outlines the significant legal developments affecting the implementation and enforcement of the Corporate Transparency Act.
What experts are saying?
Doug Burson, CPA, argues on his YouTube channel that for most legitimate businesses, the beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) are redundant. He points out that existing tax systems already provide the government with detailed ownership data. Partnerships, for example, disclose their partners through K-1 forms, while S corporations report shareholder information in their own tax filings. Sole proprietors and rental property owners similarly report their business details through schedules tied directly to personal tax returns. Burson believes that for honest business operators, the government already knows “who owns what,” making the BOI requirements an unnecessary burden.
Burson also questions the law’s effectiveness in targeting its intended audience—bad actors engaged in money laundering or other illicit activities. He suggests that those involved in illegal enterprises are unlikely to report their ownership details accurately, if at all. This creates a scenario where law-abiding businesses bear the cost and effort of compliance, while the intended targets evade detection. According to Burson, this discrepancy undermines the law’s purpose, raising doubts about its practical value.
Matthew Erskine, a trusts & estates attorney and managing partner at Erskine & Erskine LLC, notes in an article for Forbes, that the CTA imposes significant compliance burdens on small businesses, many of which already provide ownership information through existing tax filings. He argues that the act’s requirements may be duplicative, adding unnecessary complexity for law-abiding entities.
Mat Sorensen, a wealth lawyer, concurs. In comments made before the December 6 appeal, he advised businesses not to file beneficial ownership information (BOI) reports for the moment, citing the federal injunction and the low likelihood of immediate enforcement. Sorensen speculated that in the case of appeals, any reinstatement of the law would likely include a new compliance window, making filing unnecessary at this time.
Should businesses file?
- Currently: Businesses are not required to file BOI reports due to the Texas court’s nationwide injunction and the subsequent announcement of voluntary reporting by FinCen. Non-compliance during this period carries no penalties.
- Option: Voluntary filing is available for those who want to proactively comply in case the injunction is lifted.
- Recommendation:
- Monitor Developments: Legal rulings could change the filing requirements.
- Seek Legal Advice: Businesses concerned about future compliance or penalties should consult legal experts.
Consult a professional
This article is for informational purposes only and does not constitute legal, financial, or tax advice. The content is based on current publicly available information and expert opinions as of the publication date. Readers are encouraged to consult with qualified professionals, such as attorneys or CPAs, for advice tailored to their specific circumstances. Laws and regulations may change, and the interpretations of court rulings and their implications can evolve over time. The authors and publishers are not responsible for any actions taken based on the information provided herein.
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Inc413 News Team
The Inc413 news team compiles business stories from across Western Massachusetts and beyond. Our primary focus is on stories that have an impact on small businesses, entrepreneurs, and the people they employ.
