A federal court in Texas has temporarily halted the enforcement of the Corporate Transparency Act (CTA) nationwide, a law designed to increase corporate transparency. The ruling, issued on December 3, 2024, blocks the requirement for millions of small businesses to submit detailed information about their ownership and beneficial owners to the U.S. Treasury Department. Small businesses celebrate early for the holidays.
The ruling comes just weeks ahead of the January 1, 2025, deadline, which requires 32.6 million business entities to report their beneficial ownership information (Texas Top Cop Shop, Inc. v. Garland, 2024 WL 4953814 (E.D. Tex. Dec. 3, 2024).
Background
Enacted in 2021, the Corporate Transparency Act (CTA) aims to combat money laundering, terrorist financing, and tax evasion. The law requires certain business entities to report key information about their owners, officers, and control persons to the Treasury’s Financial Crimes Enforcement Network (FinCEN). A final rule issued in September 2022 established January 1, 2025, as the reporting deadline for most affected entities.
The Corporate Transparency Act (CTA) would have required small businesses and non-employer firms to disclose key details about individuals with substantial control or at least a 25% ownership stake. This rule aimed to increase transparency by revealing the identities of key stakeholders in private companies.
Companies must disclose beneficial ownership details with specific timelines based on their formation date:
- Existing companies (pre-January 1, 2024): Initial report due by January 1, 2025
- Companies formed in 2024: 90-day filing window
- Companies created after 2024: 30-day filing requirement
- Any company experiencing ownership changes: Must update within 30 days
Compliance is mandatory, with reports detailing the identities of company owners at formation and subsequent modifications.
Failure to file penalties
The BOI reporting regime carried potential civil and criminal penalties:
- Civil penalties for a violation are up to $500 per day or
- Criminal penalties of up to 2 years of imprisonment and/or a fine of up to $10,000
Texas District Court Strikes Down Beneficial Ownership Reporting Requirements
Beth Milito, Executive Director of NFIB’s Small Business Legal Center, stated, “The BOI reporting requirements are a harmful invasion of small business owners’ privacy and a misuse of their valuable time. Thankfully, the Court agreed and granted a preliminary injunction, giving small business owners a reprieve from this burdensome rule.”
The preliminary injunction halts enforcement of the beneficial ownership reporting requirement under the Corporate Transparency Act (CTA). The CTA would have required small businesses to disclose private information about each beneficial owner, with noncompliance subject to hefty fines and potential jail time.
The court issued an order preventing the Department of Treasury and the Financial Crimes Enforcement Network (FinCEN) from enforcing the BOI reporting requirements.
Compliance Deadlines and Enforcement Are on Hold – For Now
The recent court injunction has temporarily halted the Corporate Transparency Act (CTA) enforcement. While this relieves businesses, it’s important to remain cautious. The government may appeal the ruling or other courts could reverse the injunction. Companies should continue to monitor the situation closely and be prepared to comply with the CTA’s requirements if the injunction is lifted.
Conclusion
While the nationwide injunction temporarily halts enforcement of the Corporate Transparency Act (CTA), it could be lifted at any time. Entities subject to the CTA should remain vigilant by:
- Monitoring Legal Developments: Stay informed of any changes or court decisions that could reinstate the reporting requirements.
- Preparing for Compliance: Ensure readiness to meet Beneficial Ownership Information (BOI) reporting obligations if enforcement resumes.
Stay tuned for further developments, and don’t hesitate to contact Huckabee CPA with any questions.
