Alert: Beneficial Ownership Information Injunction
As we have previously reported, any existing legal entity created or registered to do business in the United States on or after January 1, 2024, has to file beneficial ownership information (BOI Report) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) prior to Wednesday, January 1, 2025, pursuant to the Corporate Transparency Act (CTA). Failure to file timely amend or correct a BOI report with FinCEN subjects the reporting company to potential civil, and in some cases criminal penalties from FinCEN.
On December 3, 2024, U.S. District Judge Amos Mazzant of the Eastern District of Texas turned the CTA and the FinCEN BOI Reporting Rule on their heads, issuing a preliminary injunction that
- suspends the requirement to file the BOI Report
- stays the January 1, 2025, compliance deadline
- declares that “reporting companies need not comply with the January 1, 2025, reporting deadline pending further order of the Court.”
The Court determined that the CTA and the BOI Reporting requirement are likely unconstitutional for purposes of a preliminary injunction. Judge Mazzant added that he has not yet made “an affirmative finding that the CTA and the Reporting requirement are contrary to law or that they amount to a violation of the Constitution.” On the basis of his finding that the CTA and Reporting requirement are likely unconstitutional, however, District Judge Mazzant determined that FinCEN should be enjoined from enforcing the BOI Reporting requirement and that the January 1, 2025, compliance deadline under the BOI Reporting requirement should be stayed.
A NATIONWIDE INJUNCTION
The most surprising part of Judge Mazzant’s order is his determination that the injunction should apply nationwide. Because one of the Plaintiff’s membership interests extended across the country, Judge Mazzant held that the extent of the constitutional violation Plaintiffs alleged was best served through a nationwide preliminary injunction.
As expected, the Defendants, on December 5, 2024, appealed the preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit.
The key question, then, is whether the Fifth Circuit will act on this appeal before the BOI Reporting requirement of the January 1, 2025, compliance deadline and if FinCEN will otherwise delay the January 1, 2025, deadline.
Accordingly, we continue to recommend that companies assess their BOI reporting obligations and either voluntarily file their BOI report or at a minimum be ready to report and be in compliance with the CTA requirements should the injunction be listed or revised. We continue to closely monitor the situation and will provide updates as new information becomes available.
Please reach out to Avery, Amanda, Alexa or John with any questions.
