Update on Beneficial Ownership Information Requirements Blocked by Texas Court

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

What is the Corporate Transparency Act and how does Beneficial Ownership relate?

The CTA was enacted in 2021 and requires most U.S. business entities to report beneficial ownership information (BOI) to the Treasury Department.  This law was initially designed to increase transparency by mandating these entities to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN) which aims to combat illicit activities like money laundering and tax evasion.  So, the CTA is the law that was passed, the BOI is the filing requirement.

The Court’s Ruling

The lawsuit, brought forth by four states including Texas, challenged the CTA’s constitutionality, citing concerns over privacy and the potential burden this could place on small businesses. The court’s decision to grant a preliminary injunction halts the regulations from taking effect until the case has been fully litigated.

What does this mean for your business?

As of now, businesses are not required to comply with the reporting demands of the CTA. However, the case is still ongoing, and the final decision could either uphold the injunction, modifying or removing these requirements, or it could overturn it, reinstating the reporting rules.

What happens next?

Because this ruling is not likely to be the final word, it’s important, more now than ever for business owners to monitor developments closely and stay prepared.  Here’s what you should consider:

• Delay Filing – Technically with this injunction, you are not required to comply with the January 1, 2025 BOI reporting deadline.  However, you need to closely watch developments because you may need to file quickly depending on what happens next.
• Consult Legal Counsel – Work with your legal advisors to assess how the CTA could affect your business if enforcement resumes.  You need to understand the obligations and potential exposure for your business, which includes understanding what penalties you may be subject to.
• Prepare for Potential Compliance – If the injunction is lifted, businesses may need to act quickly to meet reporting requirements.  It’s recommended that all beneficial owners are identified in advance and have the necessary documentation ready.
• Decide to Comply Now – You could choose to file and be covered in case this ruling is appealed and overturned. Each business needs to decide its comfort threshold when it comes to the legal system and the potential changes that may or may not occur when it comes to BOI. 
• Ultimately Stay Informed – This case highlights the importance of staying informed about regulatory changes that could affect your business.  Make sure to stay connected to your CPA throughout the year to monitor withholding, ownership changes, asset purchases, and more.  Stay connected to your legal counsel regarding partner/shareholder agreements, business changes, and more.  Finally, ensure that you subscribe to reliable information sources to help you stay ahead of compliance changes.

We understand that these changes may be confusing and potentially burdensome, but rest assured that we are here to assist you every step of the way. Our team is closely monitoring the situation and will keep you updated on any developments that may impact your business.  We also encourage you to talk to your legal counsel about the specific details of this situation.

If you have any questions or need further clarity on this matter, please do not hesitate to reach out to us. We value your business and are committed to helping you navigate these uncertain times with confidence and ease.

Your Team at Raven A. Herron & Company