CIRCUIT COURT FLIP-FLOPS (AGAIN) ON BOI REPORTING AND U.S. SUPREME COURT NOW INVOLVED
After a U.S. circuit court reverses a recent decision and supports an injunction against the CTA’s reporting requirement, the federal government turns to the Supreme Court.
Confusion continues over the on-again, off-again federal mandate for companies to report information on owners.
A U.S. Fifth Circuit Court panel reinstated a?nationwide?injunction blocking enforcement of Beneficial Ownership Information (BOI) reporting under the U.S. Corporate Transparency Act (CTA). The panel’s decision came just a few days after the U.S. government’s argument convinced the Fifth Circuit Court of Appeals, in?Texas Top Cop Shop v. Garland,?to lift the district court’s Dec. 3?preliminary nationwide injunction. BOI reporting is?therefore again (at least for the moment) as of Jan. 1, 2025.
Most recently, the U.S. Department of Justice (DOJ) has filed with the Supreme Court asking that the High Court stay the district court injunction, maintaining that the federal government is likely to succeed in its case.
“The Act’s reporting requirements are important to the government in preventing, detecting, and prosecuting crimes such as money laundering, tax fraud, and the financing of terrorism,” the DOJ wrote on Dec. 31. “The requirements therefore fall comfortably within Congress’s authority under the Commerce Clause to regulate economic activities (here, the anonymous operation of business entities) that substantially affect interstate commerce. The requirements are also necessary and proper to effectuate several of Congress’s enumerated powers, including the power to regulate interstate and foreign commerce and to collect taxes, as well as Congress’s powers with respect to foreign affairs.
“The Act imposes only minimal burdens on respondents,” the DOJ filing also read. “At a minimum, this Court should narrow the district court’s vastly overbroad injunction.”?
Compliance voluntary for now
The CTA has obliged certain nonexempt companies to report the identity of their beneficial owners and applicants for incorporation starting, for some companies, on Jan. 1, 2025.
On Dec. 3, District Court Judge Amos L. Mazzant III issued?an order calling the CTA “likely unconstitutional” and blocking the U.S. Treasury Department from enforcing it. The recent injunction was considered a relief for many companies from what was considered a potentially onerous reporting burden. The government filed an emergency motion with this court seeking a stay, winning on Dec. 23, just four days before the panel decision.
The CTA had mandated that beginning Jan. 1 companies, corporations, LLCs, limited partnerships and similar entities were to disclose information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Treasury.
With the aim to enhance financial transparency and combat money laundering, all domestic and foreign entities formed or registered to do business in the U.S. must file a BOI report unless they are exempted (often due to size). FinCEN always maintained that the reporting itself was simple and quick, though acknowledged that the obligation would fall on millions of companies.
Following the stay, FinCEN did extend the reporting deadlines for BOI. Now, after the panel’s ruling, FinCEN said: “Reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
What should companies do now?
News reports said that as of Dec. 1, FinCEN had received only 9.5 million of the 32.6 million required filings for entities existing as of Jan. 1. Non-compliance did – and still eventually may – carry severe penalties, including civil fines of up to hundreds of dollars per day, criminal fines of up to $10,000 per report and potentially imprisonment.
After the injunction, the American Institution of CPAs has advised members “that, at a minimum, those assisting clients with BOI report filings continue to gather the required information from their clients and are prepared to file the BOI report if the injunction is lifted.” Despite successful challenges in lower courts, other American courts have upheld the CTA, observers add, though the incoming Trump administration is likely to support further curtailing of the CTA.
This remains a developing situation where compliance may – or may not – be required quickly. We’ll keep you updated.
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About the Author?
Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.
Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.
Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.
Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.
Alicea is fluent in Spanish and has a working knowledge of Portuguese.
Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).
Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA?Forty?Under 40 Award.?She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.
In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth's Powerwomen Awards in the category USA - Woman of the Year - Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world's elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.
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