
Tax News and Updates
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The Corporate Transparency Act (CTA) requires “reporting companies” to submit “beneficial owner” information and “corporate applicants” (“boys“) will cooperate with the Financial Crimes Enforcement Network (FinCEN) as early as January 1, 2025. At the “last minute” on December 3, 2024, the U.S. District Court for the Eastern District of Texas TOP POLICE STORE LIMITED ETC. v. garland1issued an order (court order) temporarily prohibiting the U.S. government from enforcing the CTA and CTA regulations. Specifically, the court ordered:
- The CTA’s deadline for domestic and foreign reporting companies incorporated or registered before 2024 to submit a BOIR is retained as January 1, 2025, and
- Prohibits the U.S. government from enforcing the CTA and the implementing regulations promulgated by FinCEN.
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Based on the plain language of the decision, while FinCEN preliminarily prohibits enforcement of CTAs against all reporting companies, the BOIR filing stay does not appear to apply to the 90-day BOIR filing deadline for reporting companies formed or registered during 2024. , FinCEN published an alert on its website on December 6, 2024 (FinCEN Alert) stating that pursuant to the court order, reporting companies are currently not required to file reports and FinCEN will not be liable if they fail to do so while the court order remains in effect.2 The implication of the FinCEN alert is that CTA penalties will not be imposed as long as the court order remains in effect against the reporting company:
- Established or registered before 2024, the submission deadline is January 1, 2025.
- Established in 2024, submission deadline is 90 days, or
- The deadline to submit a corrected or updated BOIR is 30 days.
Nonetheless, FinCEN confirmed in the FinCEN Alert that reporting companies can continue to voluntarily submit BOIRs.
In such cases, officers of such companies responsible for BOIRs, particularly foreign reporting companies, should consider applicable confidentiality obligations under contractual arrangements or foreign privacy laws before submitting their BOIRs to FinCEN or voluntarily obtaining a FinCEN identifier.
Regardless, it would be prudent for reporting companies to continue to collect their beneficial ownership information for the purpose of filing a FinCEN identifier or an initial, correct, or updated BOIR, as applicable. This way, the reporting company will be ready to file if the need arises again.
As background, the CTA and its regulations come into effect on January 1, 2024. The CTA came back into effect in January 2021, requiring “reporting companies” to submit reports on their BOIR. More than 32 million entities are expected to file BOIRs with FinCEN.
FinCEN issued final rules on BOIR requirements on September 29, 2022, and on December 22, 2023, on access to BOIR by individuals and entities outside FinCEN, both in January 2024. Effective from 1st. The CTA regulations require domestic and foreign reporting companies formed or registered before 2024 to submit an initial BOIR by January 1, 2025, and domestic and foreign reporting companies formed or registered during this period to file an initial BOIR within 90 days of formation or registration in 2024. BOIR. Our previous client reminded us that the filing requirements are discussed in detail in the Corporate Transparency Act – Three Months Later.
The court orders the imposition of a preliminary injunction, and top police store The courts have not yet issued a final ruling on the constitutionality of the CTA or its implementing regulations promulgated by FinCEN. However, the court held that the CTA and its implementing regulations “may be unconstitutional” for the purposes of issuing a preliminary injunction. The preliminary injunction shall remain in effect until further order of the court. The U.S. government has appealed.
Reporting companies appear to still have a legal obligation to file a BOIR. However, due to a court order delaying the January 1, 2025 deadline, and FinCEN confirming that it will no To enforce any CTA compliance deadlines, reporting companies can wait to file a BOIR until FinCEN issues further guidance or the court order is overturned.
The court-ordered stay of BOIR filings arguably only applies to the January 1, 2025 compliance deadline for reporting companies incorporated or registered before 2024. The plain language of the decision does not appear to apply to the 90-day BOIR filing deadline for reporting companies formed or registered before 2024. Register during 2024 or correct a previously submitted BOIR within the 30-day period. However, according to the FinCEN Alert, as long as the court-ordered preliminary injunction remains in effect, FinCEN will no Daily fines are imposed on reporting companies that fail to submit an initial, corrected or updated BOIR.
As a reminder, the CTA imposes criminal and civil penalties for: willfully Provide false or fraudulent beneficial ownership information, or willfully Failure to report complete or updated beneficial ownership information. If violations continue or are not corrected, they may result in civil penalties of $500 per day, or a criminal fine of not more than $10,000, imprisonment of not more than two years, or both. A safe harbor (i.e., no civil or criminal penalties) may apply if a person has reason to believe that a submitted report contains inaccurate information and “voluntarily and promptly” files a corrected report within 90 days. However, the safe harbor is not available if the person knowingly submitted false information in the first report.
Reporting companies should continue to monitor any guidance from the courts top police storethe U.S. Treasury Department and FinCEN will confirm any updates to their filing obligations accordingly. It has been observed that even if the current Ministry of Justice attempts to overturn top police store In the appeal decision, it is worth noting that then-President Trump vetoed the CTA in 2021. His veto was eventually overturned by a two-thirds vote in both the House and Senate. This may be a sign that the new leadership at the Justice Department will not seek to defend the CTA.
As a reminder, as posted on the FinCEN website, on March 1, 2024, the U.S. District Court for the Northern District of Alabama, Northeast Division, entered a declaratory judgment finding that the CTA violated the Constitution, among other pending litigation on the power of Congress and prohibits the U.S. Treasury Department and FinCEN from enforcing the CTA against a specific plaintiffnamely: Isaac Winkles, a reporting company with Isaac Winkles as the beneficial owner or applicant, the National Small Business Association (NSBA), and a member of the NSBA.3 In a prior notice posted on its website, FinCEN said it would comply with the court order as long as it remains in effect against the plaintiffs in the case, which is pending an appeal by the U.S. government.
1 Texas Top Cop Shop, Inc. v. GarlandNo. 4:24-cv-00478 (E.D. Texas Dec. 3, 2024).
2 Original content updated after FinCEN alert was published.
3 National Federation of Small Business v. YellenNo. 5:22-cv-01448 (North Dakota, AL).
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