Corporate Transparency Act and Beneficial Ownership Information (“BOI”) Reporting
In January 2021, the Corporate Transparency Act (“CTA”) was enacted by Congress as a part of the larger National Defense Authorization Act. The CTA was designed to help prevent financial crimes such as money laundering, financing for terrorists, drug trafficking and other crimes. To achieve its goal, the CTA requires most business owners, in the United States, to report specific information about their “beneficial owners”. “Beneficial owners”, for CTA purposes, are the individuals who ultimately own or control the company. The Legislation reasoned that the collection of this information will make it harder for criminals to hide or financially benefit from illegal activity by using complex corporate structures, shell companies, or other opaque ownership interests.
This information is collected by the United States Department of Treasury through its Financial Crimes Enforcement Network commonly referred to as FinCEN. The information is collected in reports called beneficial ownership information reports or BOI Reports. For companies formed prior to 2024, a BOI must be filed within 1 year. For companies created or registered after January 1, 2024, a BOI must be filed within 90 days. Companies created or registered after January 1, 2025, only have 30 days to file. For more information from FinCEN on BOI reporting click here.
While the CTA could be a useful tool in fighting financial crimes, the concern raised by many is the collection of personal information such as beneficial owner’s name, address, date of birth, driver’s license number (plus a picture of the license), passport information (plus a picture of the passport), the business address, business formation jurisdiction, etc. The collection of this type of highly personal information by the government raises privacy issues and may be beyond the scope of the government’s constitutional authority. These concerns are magnified in the context of small businesses with one or a few owners. As a result of these concerns, lawsuits were brought to stay the enforcement of the BOI reporting requirements.
Once the CTA took effect on January 1, 2024 it did not take long for it to be challenged. On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction in Texas Top Cop Shop, Inc. v. Garland. The preliminary injunction temporarily blocked FinCEN from enforcing BOI reporting requirements. The Texas Court found that the CTA likely does not regulate interstate commerce and is not justified under Congress’s power to enact laws that are “Necessary and Proper” to lay and collect taxes.
On December 23, 2024, the U.S. Court of Appeals for the Fifth Circuit overturned the injunction and permitted the enforcement of BOI reporting to move forward. As a result, FinCEN announced a new reporting deadline of January 13, 2025.
On December 26, 2024, surprisingly, the U.S. Court of Appeals Fifth Circuit reinstated the preliminary injunction enjoining (or prohibiting) the government from enforcing the CTA. As a result, the January 13, 2025 reporting deadline has been postponed. On December 31, 2024, United States Department of Justice made an application to the United States Supreme Court for a stay of the injunction issued by the U.S. Court of Appeals for the Fifth Circuit.
The Courts have scheduled arguments for March 2025, however, that will likely not be the end. There is no doubt that the collection of personal information on law abiding business owners should be questioned. There are legitimate concerns as to how the government will safeguard this personal information from cyber criminals. In addition, having this type of personal data in one centralized location creates the potential for misuse of that information. For more information on BOI reporting please call J. P. Robinson Law at (914) 265-3179 or email at Justin@jprobinsonlawllc.com.
Sources and Additional Information
https://www.fincen.gov/beneficial-ownership-information-reporting-rule-fact-sheet
https://www.fincen.gov/sites/default/files/shared/BOI-FAQs-QA-508C.pdf
