On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction suspending the enforcement of the Corporate Transparency Act (CTA). In Texas Top Cop Shop, Inc., et al. v. Garland, et al., U.S. District Judge Amos Mazzant temporarily halted the CTA’s reporting requirements finding the act likely unconstitutional. The injunction applies to all states and affects all existing reporting companies, despite previous court challenges in other districts that had upheld the law.
While the preliminary injunction currently relieves companies from their immediate filing obligations, the legal landscape remains uncertain.
The government is expected to pursue expedited legal options. Prudence would have companies subject to the law continue to gather the necessary beneficial ownership information and remain prepared to file their reports if the injunction is lifted, or in the alternative submit their BOI reports before January 1, 2025.
At this time, FinCEN continues to accept Beneficial Ownership Information (BOI) filings using the BOI E-Filing System.
As the January 1, 2025 reporting deadline remains in flux, companies should stay vigilant and monitor further developments from the Department of Justice, Treasury, and FinCEN.
About the CTA
The CTA, part of the National Defense Authorization Act, became law on Jan. 1, 2021. The CTA was enacted with the goal of providing law enforcement with beneficial ownership information to aid in the detection, prevention, and punishment of business misconduct. To accomplish this aim, the Financial Crimes Enforcement Network, or FinCEN, a bureau of the U.S. Department of the Treasury, is collecting this information from all applicable beneficial owners.
Possible Exemptions
If the law is upheld, the majority of businesses will be required to file BOI information. Under the law there are exemptions to this rule: 23 types of entities are exempt from BOI reporting requirements and the list of exempt entities can be found here. These include banks, brokers, insurance companies, many nonprofits, and large operating companies, among others.
Importantly, there is no express exemption for cooperative corporations and condominium associations which are required to file BOI reports unless they fall within an exemption such as (a) being a tax exempt entity under Section 501 of the Internal Revenue Code; (b) not created by virtue of filing a document with the Secretary of State of similar office or (c) qualify as a “large operating company” that (i) employs more than 20 full time employees in the US; (ii) has income greater than $5,000,000.00; and (iii) has an office in the United States.
Penalties For Failing To Report
If the law is upheld, you may be subject to significant civil penalties. As laid out in the CTA, those who violate the BOI reporting requirements may be subject to fines of up to $500 for each day the violation continues; however, that figure is subject to inflation, and as of this writing, the amount is closer to $595 per day.
The foregoing is not intended to be comprehensive nor constitute legal advice. If you would like to discuss your specific circumstances or would like more information, feel free to contact us at (212) 625-8505.