Update on the Corporate Transparency Act: Court Suspends Reporting Requirements for Businesses

Less than one month before the Corporate Transparency Act’s (CTA) Beneficial Ownership Information (BOI) reporting deadline, a U.S. District Court ruled that requirements exceed Congress’s authority under the Commerce Clause of the Constitution.

What the court ruling means for reporting

The court issued a preliminary injunction blocking the implementation of the CTA, which requires millions of U.S. legal entities to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). This injunction temporarily puts the reporting obligation on hold, as legal challenges question the scope and constitutionality of the Act’s requirements.

While the government defended the CTA as a necessary measure within Congress’s right to regulate interstate and foreign commerce, the court determined that the CTA infringes upon states’ rights to regulate businesses and cannot compel businesses to disclose ownership information solely for law enforcement purposes.

With the injunction in place, businesses are currently exempt from the reporting obligation, but the final outcome of the case remains uncertain and will have important implications for future compliance. If the injunction is lifted, prepare to file the BOI report.

What is the CTA?

The CTA, which came into effect on January 1, 2024, is designed to increase transparency in the ownership of legal entities in an effort to tamp down illicit financial activity. By requiring privately-held corporations, limited liability companies, and limited partnerships to report their beneficial owners, the law aims to curb money laundering, tax evasion, and other financial crimes.

The CTA requires both domestic and foreign entities operating in the U.S. to file detailed reports with FinCEN. However, some businesses—such as large public companies and regulated entities like banks and insurance firms—are exempt.

Failure to comply with the reporting requirements was initially set to result in penalties of up to $500 per day, with a maximum fine of $10,000. As the legal case continues, businesses should remain aware of the potential for these requirements and subsequent penalties to be reinstated.

Read more background on the CTA.

What this means for businesses and other legal entities

At present, businesses and other legal entities that have not yet submitted their BOI to FinCEN are not obligated to do so and will not face penalties for failure to report. However, this injunction does not apply to entities that have already submitted their information, leaving this open for further clarification.

As the case continues, future rulings may lead to the reinstatement or modification of the CTA’s provisions. Therefore, entity owners should stay ahead of the curve and consult with an advisor to navigate the shifting regulatory environment.

What businesses should do next

BPW is not a legal advisory firm, and as such, does not provide legal determinations regarding whether an entity qualifies for an exemption or whether specific legal relationships meet the criteria for beneficial ownership. Given the complexity of the new reporting requirements, we recommend that all our clients consult with their legal advisors to ensure proper compliance.

It’s important to stay up-to-date on the status of the ongoing court case, as future rulings may determine if and when the filing requirements are reinstated.

Please contact me with any questions at jsheffield@bpw.com or (805) 963-7811.