By Linda R. Brower, Esq., Senior Counsel, Commercial Transactions

The Background

The BMK Corporate Group has previously written in this space about The Corporate Transparency Act (the Act) as a topic of interest to clients and friends of the firm. We write now to update you regarding a new development under the Act and its reporting requirements — specifically, the Beneficial Ownership Information Reporting Rule (BOI Reporting Rule.

Recall that the Act was intended to expose, and thus deter, shell companies engaged in illegal activities, including terrorist financing, money laundering and tax fraud. The Act requires that companies subject to the Act and their “beneficial owners” must report sensitive information, including names, addresses, birthdays and drivers’ license or passport identification numbers.

What Happened

On December 3, 2024, in a first-of-its kind ruling under the Act, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction “pausing” the reporting requirements for all reporting companies (not just plaintiffs in the case).  The result of the ruling is to prohibit the federal government from continuing to enforce the Act and its BOI Reporting Rule until further court action stays, overturns or modifies the injunction.

The Texas federal district court determined that the plaintiffs in the case had demonstrated the likelihood that they would prevail on the merits of their claims that the Act was unconstitutional and exceeded Congress’s power to enact. The U.S. Department of Justice (DOJ) already filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit on December 5, 2024.  The  DOJ’s first move will likely be to seek a stay of the lower court’s preliminary injunction (and let the BOI Reports continue to be filed) while the DOJ appeals to the Fifth Circuit on the merits of the case on an expedited basis (i.e., to allow for an expedited hearing on the parties’ opposing contentions).

What This Means For Reporting Companies

In short, at least for now, companies that are subject to the Act and the BOI Reporting Rule are not required to submit beneficial ownership reports to FinCEN. For those companies subject to the Act that have not yet filed an Initial Report, it would be best to continue to be prepared to file the BOI Report. It is still possible that pre-2024 reporting companies will be required to file by the original deadline of January 1, 2025.  The FinCEN reporting portal is still open and accepting BOI Reports for filing.

For pre-2024 reporting companies that have already filed initial BOI Reports, monitor the media for reports that the information submitted in initial BOI Reports is going to change. It is certainly in line with FinCEN’s responsibility that it will be issuing further guidance to reporting companies in the extremely near future on this subject.

This communication is not a full analysis of the matters presented and should not be relied upon as legal advice and could be considered attorney advertising.

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