In a significant development impacting business owners across the United States, a federal district court recently issued an injunction temporarily halting the enforcement of certain provisions of the Corporate Transparency Act (CTA). This act, enacted to mandate clearer financial regulations and combat illicit financial activities, requires various entities to disclose information about their beneficial owners to the Financial Crimes Enforcement Network (FinCEN).
This injunction, which blocks the government from enforcing the stringent penalties for non-compliance, stems from a legal challenge by several business associations and privacy advocates who argue that components of the CTA impose undue burdens on small businesses and raise privacy concerns.
District Court’s Injunction
The U.S. District Court granted the injunction for the Eastern District of Texas, which emphasized that while the objectives of the CTA align with enhancing financial transparency and reducing money laundering, several provisions might impose excessive compliance costs on smaller enterprises. The court’s ruling reflects significant concern over the privacy of business owners, who argue that disclosing detailed personal information in a centralized database could lead to potential misuse or breaches of sensitive data.
Specifically, the chaos is related to the mandatory reporting requirement for Beneficial Ownership Information (“BOI”). The latest updates:
- On December 3rd, a federal district court in Texas issued an injunction preventing the government from enforcing the BOI requirement.
- On December 23rd, a federal court of appeals lifted the injunction, reinstating the BOI reporting requirement.
- On December 26th, a different panel of judges on the court of appeals reinstated the injunction. So, as of this post, there is no BOI reporting requirement.
Ramifications for Business Owners
The ramifications of this injunction are multifaceted:
- Temporary Relief. Business owners, particularly those running small to medium enterprises, obtain temporary relief from the onerous compliance requirements that seemed imminent. The court’s injunction applies nationwide and blocks the government from enforcing penalties for non-compliance with the disclosure requirements.
- Ongoing Legal Battles. The injunction does not eliminate the CTA’s obligations entirely; it merely suspends them pending further judicial review. Business owners should prepare for ongoing litigation, which may eventually modify or reinforce parts of the act.
- Should Business Owners Still File? Businesses need to remain proactive and be ready to comply with the disclosure requirements should the injunction be lifted. If desired, business owners may voluntarily comply with the disclosure requirements by going to https://boiefiling.fincen.gov.
Given the inconsistency of recent court decisions, and as a precaution, our firm is filing BOI reports for new entities our clients request we create on their behalf. We also encourage clients with existing entities to file their BOI reports in case the injunction is lifted. However, commentators indicate, and we agree, that if the injunction is permanently lifted, a grace period will be granted to allow business owners a reasonable period of time to comply. We will continue monitoring developments closely and notify our clients should the injunction be lifted.
Kent Phelps, TRAJAN ESTATE COFOUNDER AND ATTORNEY
As a second-generation estate planning attorney with over 25 years of experience, Kent Phelps appreciates the positive impact a customized estate plan can have on his clients and the generations that follow. Kent has been admitted to the State Bar of Arizona. He received his Bachelor’s degree from Arizona State University and his J.D. from the University of the Pacific. Additionally, he is a member of the Wealth Counsel and the Arizona State Bar Probate & Trust Section.
