What Business Owners Need to Know

A recent federal court ruling has put the brakes on one of the most talked-about compliance mandates for U.S. businesses. On Dec. 3, 2024, a federal district court in Texas issued a preliminary nationwide injunction blocking the enforcement of the Corporate Transparency Act (CTA) and its associated regulations. For now, business owners can breathe a temporary sigh of relief—but the situation is far from settled.

Here’s what you need to know about this development and how it might impact your business.

What is the Corporate Transparency Act?

The CTA, enacted in 2021, requires most U.S. business entities to report beneficial ownership information (BOI) to the Treasury Department. The law aims to combat illicit activities like money laundering and tax evasion, but many business owners have expressed concerns about the administrative burden and privacy implications.

The Court’s Ruling

The court granted a preliminary injunction blocking the CTA’s enforcement, including its upcoming Jan. 1, 2025 BOI reporting deadline. The injunction, citing the Administrative Procedure Act (APA), effectively halts the Treasury Department and its Financial Crimes Enforcement Network (FinCEN) from enforcing reporting requirements or penalties for noncompliance.

Key takeaways from the ruling:

  • No Immediate Compliance Required: Businesses are not currently required to file BOI reports by the original deadline.
  • Penalties Suspended: FinCEN cannot enforce penalties for willful noncompliance.
  • Law Still Exists: The CTA itself has not been overturned, only its enforcement has been paused.

What Happens Next?

This ruling is not likely to be the final word. Here’s what could happen:

  • Appeals Process: The government is expected to appeal the decision to the U.S. Court of Appeals for the Fifth Circuit. A further appeal could escalate the case to the Supreme Court.
  • Potential Reinstatement: If a higher court overturns the injunction, the reporting requirements could be reinstated, possibly with little advance notice.
  • Ongoing Uncertainty: Businesses will need to monitor developments closely to stay prepared.

What Business Owners Should Do Now

While the ruling provides temporary relief, business owners should not ignore the potential for future compliance requirements. Here are steps to consider:

  • Delay Filing
    You are not currently required to comply with the Jan. 1, 2025 BOI reporting deadline. However, keep an eye on court developments to avoid being caught off guard.
  • Consult Legal Counsel
    Work with legal advisors to assess how the CTA might impact your business if enforcement resumes. Understanding your obligations and potential exposure now can save you time and headaches later.
  • Prepare for Potential Compliance
    If the injunction is lifted, businesses may need to act quickly to meet reporting requirements. Consider establishing internal compliance mechanisms, such as identifying beneficial owners and gathering necessary documentation.
  • Stay Informed
    This case highlights the importance of staying informed about regulatory changes that could affect your business. Subscribing to updates from reputable sources can help you stay ahead of compliance challenges.

Questions?

The blocking of the Corporate Transparency Act highlights the ongoing conversations around the balance between combating financial crime and protecting business interests. While the court’s decision buys businesses more time, it’s important to be prepared for the possibility of future reporting requirements.

We will keep you informed of further developments regarding CTA compliance. Contact an Adams Brown advisor if you have questions.