Judge Blocks Federal Ownership Reporting Requirements

Judge Blocks Federal Ownership Reporting Requirements
A federal court in Texas halted the implementation of the Corporate Transparency Act’s (CTA) beneficial ownership reporting requirements. Holding that the CTA is likely unconstitutional, the court issued a preliminary injunction barring the government from enforcing the CTA and its reporting requirements against anyone.
 
Why it matters: Prior to the ruling, small businesses that met certain criteria would have had to file reports with the Department of the Treasury by January 1, 2025, or risk fines and criminal penalties.
 
Looking ahead: The preliminary relief will remain in effect until the conclusion of legal proceedings, at which point the court may enter a permanent injunction. In the meantime, the government will likely appeal the preliminary injunction. 
 
Bottom line: Unless and until an appellate court overrules or narrows the injunction, no businesses are obligated to comply with the reporting requirements.
 
What is the Corporate Transparency Act’s (CTA)?
The CTA was enacted in 2021 to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market. Under the new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN). This report provides details identifying individuals who are associated with the reporting company.
The CTA was established to prevent individuals with malicious intent from hiding or benefitting from the ownership of their U.S. entities to facilitate illegal operations which, according to Congress, is a widely-used tactic that affects national security and economic integrity.
 
FACT SHEET: U.S. Department of the Treasury Actions to Prevent and Disrupt Corruption | U.S. Department of the Treasury
 
Under the Corporate Transparency Act (CTA), which went into effect on January 1, 2024, many U.S. small business owners are required to file corporate transparency reports with beneficial ownership information.
For most eligible businesses, the filing deadline is January 1, 2025. Those who fail to file by this deadline — or fail to update this information if needed — could face up to two years imprisonment and fines up to $10,000, in addition to civil penalties of up to $591 per day.