Overview of the Corporate Transparency Act (CTA)
The Corporate Transparency Act (“CTA”) requires certain reporting companies to submit a Beneficial Ownership Information Report (BOIR) to the Financial Crimes Enforcement Network (“FinCEN”).
Each BOIR must identify every beneficial owner of the reporting company. The report must include the individual’s full legal name, date of birth, address, and a unique identifying number. That number must come from an acceptable identification document or a FinCEN identifier.
Who Is a “Beneficial Owner”?
The CTA defines a beneficial owner as an individual who meets at least one of the following criteria:
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Exercises substantial control over the entity, directly or indirectly; or
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Owns at least 25% of the ownership interests in the entity
Certain exemptions apply under the statute.
What Is a “Reporting Company”?
A reporting company generally includes:
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A corporation,
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A limited liability company, or
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Another similar entity
These entities must be created by filing a document with a secretary of state or similar office. The definition also includes foreign entities registered to do business in the United States. Some exemptions apply here as well.
The Court’s Opinion
On December 3, 2024, Federal District Judge Amos L. Mazzant of the Eastern District of Texas issued a Memorandum Opinion and Order in Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., Civil Action No. 4:24-cv-00478.
In that decision, the court granted a Motion for Preliminary Injunction. As a result, the ruling temporarily halts CTA reporting requirements and prevents the government from enforcing them.
The court explained that the CTA represents Congress’s attempt to combat corporate anonymity. According to the opinion, the law requires companies to disclose detailed personal information about their owners to the federal government. Failure to comply carries severe penalties.
However, the judge ultimately concluded that the government failed to show that the CTA falls within Congress’s constitutional authority.
The court stated that the CTA “appears likely unconstitutional.” Accordingly, the court enjoined the CTA and its implementing regulations.
Practical Impact of the Ruling
As a result of the injunction, the government is prohibited from enforcing the BOIR rule.
Most importantly, the January 1, 2025 compliance deadline has been stayed. Reporting companies are not required to comply with the BOIR deadline at this time.
Comparison to a Prior CTA Case
In a previous case, National Small Business United d/b/a the National Small Business Association v. Yellen, the court’s ruling applied only to the plaintiffs. As a result, non-parties were still required to comply with the CTA.
However, the court reached a different conclusion in Texas Top Cop Shop. In that case, the government acknowledged that enjoining the CTA would effectively create a nationwide injunction. The court agreed with that position.
Accordingly, the injunction now applies nationwide, not just to the plaintiffs in the case.
What Should Businesses Do Now?
At this time, clients have two options:
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Continue filing BOIRs voluntarily; or
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Pause BOIR filings and wait for further legal developments
Each business should evaluate its risk tolerance and compliance strategy carefully.
Need Guidance?
If you have questions about the CTA or BOIR reporting, please reach out. We also assist with tax planning, tax strategy, and tax return preparation for individuals and businesses.
Devon Kwande, CPA is a seasoned Tax Planner and Tax Strategist for individuals and businesses. He also assists with state and federal tax compliance matters for entities in receivership. Devon additionally provides compensation consulting services, including pay program design, incentive plan design, compensation studies, and pay equity analysis.
