With less than a month before the Beneficial Ownership Information (BOI) reporting deadline, many assumed that all details were finalized. However, in an unexpected turn of events, on December 3, 2024, a federal judge in Texas issued a preliminary injunction blocking the enforcement of the Corporate Transparency Act (CTA)’s BOI reporting requirements, which were set to take effect on January 1. The injunction will likely be challenged in the 5th Circuit Court and Supreme Court, which will take some time. Conservatively, it would be best to go ahead and file your Beneficial Ownership Information report as the requirement will likely survive, but the timeline and/or penalties associated with filing the reporting deadline will change.
A Quick Recap: What’s Happening with the BOI Report?
The National Federation of Independent Business (NFIB) and several of its members filed a lawsuit challenging the constitutionality of the CTA. Enacted in 2021, the CTA established a BOI registry and mandated that certain businesses report their beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The plaintiffs argued that:
- Exceeding Congressional Authority: The CTA oversteps Congress’s power to regulate interstate commerce.
- First Amendment Violations: It compels speech and infringes on freedom of association.
- Fourth Amendment Concerns: It forces the disclosure of private information without adequate protections.
As the initial January 1 reporting deadline approached, compliance rates were alarmingly low. By mid-November, only about 25% of the estimated 32.5 million covered businesses had registered. A poll by Wolters Kluwer revealed that:
- 37% were waiting until closer to the deadline.
- 12% lacked sufficient resources to complete the filing.
- 9% believed they were not covered by the rule.
- 32% were unsure whether the rule applied to them.
Judge Mazzant’s nationwide injunction acknowledges the widespread impact of the CTA and the Reporting Rule on millions of businesses across the country. By applying the injunction nationally, the court aims to provide meaningful relief and address the significant constitutional issues raised.
What Does This Mean for You?
For now, businesses that were required to report their beneficial ownership information to FinCEN are not obligated to meet the impending January 1 deadline. This includes many dental practices structured as small businesses, which fall under the CTA’s reporting requirements. Non-compliance could have led to penalties, so this injunction offers temporary relief but also introduces uncertainty.
Next Steps:
While the injunction halts enforcement, it does not eliminate the statutory obligations under the CTA. Businesses remain legally required to comply unless the law is repealed or permanently enjoined by the courts. Here’s what you should consider moving forward:
The Road Ahead
The nationwide injunction is likely the beginning of a prolonged legal battle. The decision is expected to be appealed, and its outcome could significantly influence federal regulatory authority. Additionally, future administrative actions may further impact the CTA’s implementation, adding another layer of uncertainty for businesses.
If You Have Already Filed with FinCEN:
- Pause Compliance Efforts: With enforcement currently halted, no immediate action is required.
- Monitor Developments: Stay updated on legal proceedings and any policy changes that may affect your obligations.
- Protect Your Data: Ensure that any submitted beneficial ownership information is securely maintained to prevent misuse.
For our clients who have submitted a BOI compliance form with us, rest assured—we will keep you informed and take necessary actions when required.
If You Have Not Filed with FinCEN:
- Delay Filing: The injunction means you are not currently required to comply with the CTA’s reporting requirements.
- Consult Legal Counsel: Work with legal advisors to assess your potential obligations if the injunction is lifted or enforcement resumes.
- Prepare for Compliance: Stay ready to act promptly if reporting deadlines are reinstated. Establishing compliance mechanisms now can help mitigate future risks.
Stay Proactive and Informed
This recent development underscores the dynamic nature of regulatory compliance. We recommend all businesses remain vigilant and informed about ongoing legal and administrative changes related to the CTA. Engage Advisors is committed to providing you with timely updates and guidance to navigate these uncertainties.