To Do or Not to Do: That Is No Longer the Question (at Least in 2024) – Time to File Beneficial Ownership Information Reports (BOIR) Under the Corporate Transparency Act

For those familiar with the beneficial ownership information (“BOI”) reporting rules under the Corporate Transparency Act of 2021 (“CTA”), you may be aware that on March 1, 2024, the U.S. District Court for the Northern District of Alabama issued a ruling in the case of National Small Business United, d/b/a the National Small Business Association (“NSBA”) v. Yellen. The court concluded that the CTA exceeds the Constitution’s limits on Congress’s power and issued an injunction against the Department of the Treasury and FinCEN, preventing them from enforcing the CTA against the plaintiffs. The Justice Department, representing the Department of the Treasury, filed a Notice of Appeal on March 11, 2024, and the litigation is ongoing.

While the litigation continues, Alabama is not alone in its view that the CTA oversteps Congress’s enumerated powers. On May 20, 2024, 22 states filed an amicus brief (in lawyer speak, that’s a legal document submitted to a court by a person or organization that is not directly involved in a case, but has an interest or expertise that can help the court make its decision) with the Eleventh Circuit in support of the appellees, arguing that the CTA “raises all the federalism red flags.” Meanwhile, the government has argued on appeal that the CTA aligns with a “long and unquestionable practice” of business regulation.

Many continue to hold out hope that the CTA will be declared unconstitutional and rendered void. This is even more the case given the administrative burdens being placed on an estimated 32 million small companies by the CTA and some of the guidance FinCEN has been issuing, including in its FAQ on BIO Reporting obligations. However, as long as this litigation is active, FinCEN will continue to enforce the CTA as mandated by Congress, while adhering to the NSBA court’s order. Except for the specific individuals and entities covered by the court’s injunction (i.e., Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and its members as of March 1, 2024), all reporting companies are still required to comply with the law and file beneficial ownership reports as stipulated in FinCEN’s regulations.

As we approach the fourth quarter of 2024, it seems unlikely that the CTA will be ruled unconstitutional this year. Therefore, readers of the entreVIEW blog and other entrepreneurs (tell your friends!) should review my prior CTA-related posts here and here and also review the materials we’ve published in the Lathrop GPM Client Resource Center as they starts to consider and take action to file initial BOI reports before the January 1, 2025 deadline!