New Ruling Requires January 13, 2025 Deadline for Compliance with Corporate Transparency Act “Beneficial Ownership” Filings

Beneficial Owner Information Reports (BOIR).

Founders, investors, directors, trustees and other ultimate beneficial owners of most U.S. legal entities are the targets of the federal Corporate Transparency Act (CTA) of 2021 for potential financial criminal uses of U.S. legal entities.  The CTA requires state and tribal governments to collect personal information through beneficial ownership reports (“BOIR”) of all legal entities established or operating under local or tribal law, effective January 1, 2024, with certain exceptions.  The Financial Crimes Enforcement Network of the U.S. Department of Treasury has issued a pamphlet on “Beneficial Ownership Interest” disclosure requirements under the CTA.  This applies to 25% owners, directors and persons in “substantial control.”

Pending Litigation on Unconstitutionality Claim.  Originally, all first BOI reports were due by December 31, 2024.  At the last minute a Texas federal district court issued a nationwide preliminary injunction on December 3, 2024, suspending enforcement.  See Texas Top Cop Shop, Inc. v. Garland, USDC ED Texas, Civil Action No. 4:24-CV-478.   The Texas court said “the CTA appears likely unconstitutional,” considering “the Federal Government is not equipped with a federal police power to regulate all aspects of public life.” Slip Opinion, at p. 33.  

On December 23, 2024, the federal Fifth Circuit Court of Appeals cancelled a lower Texas federal court’s nationwide preliminary injunction and sent the case back to the district court for a decision on the merits.  The appellate court found sufficient constitutional power for the CTA under the Commerce Clause to “detect, prevent, or prosecute money laundering, the financing of terrorism, proliferation finance, serious tax fraud, or other crimes.” See 31 U.S.C. § 5336(a)(11)(B)(xxiv).  The appeals court did not need to evaluate additional constitutional powers under Congress’s foreign commerce powers, tax powers, and foreign affairs interests, as well as the President’s law-enforcement and national-security powers.  Texas Top Shop, Inc. v. Garland, U.S. Ct. of App. (5th Cir. Docket 24-40792, Order, Dec. 23, 2024).  

URGENT ALERT TO BUSINESS OWNERS.  The litigation continues, but only impacts the parties.  Generally, if you “own” (25% or more) or “control” (as director, officer, manager, rights-holder, etc.) any U.S.-organized companies, you should consult an attorney and comply by January 13, 2025 to avoid potentially substantial penalties. See FinCEN’s Updates to Filing Deadlines for Business Ownership Information Reports.  Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.

If you need help, please let us know.  This alert is not legal advice.