The U.S. Attorney General’s office is asking a federal court to reinstate the Jan. 1 deadline to file beneficial ownership information in a tug-of-war battle with small-business owners with two weeks to go.
On Friday, Dec. 13, the federal government filed an emergency motion with the Fifth Circuit Court of Appeals to reverse a Dec. 3 order that suspended beneficial ownership information reporting, which was due for most small businesses on Jan. 1. The emergency motion with the appellate court comes two days after the Attorney General’s office filed a similar motion with the district court.
As of Tuesday, Dec. 17, small businesses are not required to adhere to new beneficial ownership information reporting rules. Before the federal court’s nationwide injunction, most companies with 20 or fewer employees formed before Jan. 1, 2024, were required to submit that information by Jan. 1, 2025.
In its latest court filing, the federal government is asking the Fifth Circuit to decide whether that injunction remains intact by Dec. 27, less than a week before the beneficial ownership information reporting deadline. A last-minute order to stay the current injunction would give businesses that have not filed only a few days to comply.
Further complicating things, businesses established after Jan. 1, 2024, must file beneficial ownership information within 90 days of forming. The court order refers only to the deadline for older businesses, but it also enjoins the Corporate Transparency Act in its entirety, including the 90-day window for new businesses.
Although it is implied that the court order applies to new businesses as well, owners of those businesses are advised to proceed with extreme caution and consult their own attorney to resolve any doubts.
On its website, the Financial Crimes Enforcement Network (FinCEN) acknowledged the court order and noted that beneficial ownership information can still be submitted voluntarily.
“In light of a recent federal court order, 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,” FinCEN’s website states. “However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
Enacted to combat terrorism financing, the Corporate Transparency Act collects beneficial ownership information from small businesses, which criminal organizations typically use as shell companies. Reporting requirements went into effect this year. However, a significant number of affected businesses were unaware of the new rules, prompting lawsuits and congressional action.
Two weeks ago, a federal court ruled that claims that the Corporate Transparency Act is unconstitutional are likely to succeed and ordered the injunction pertaining to beneficial ownership information reporting.
The federal government argues that it is being harmed by the injunction, as Congress has deemed the Corporate Transparency Act “essential to the government’s efforts to combat money laundering, terrorism financing, human and drug trafficking and other criminal acts.” Conversely, small businesses face virtually no harm by reinstating the deadline, considering there are no fees attached to reporting beneficial ownership information, and it takes only 90 minutes to complete.
According to a coalition of more than 100 trade associations, few companies have complied because few know about the beneficial ownership information rules.
“Although filing under the (Corporate Transparency Act) began at the start of this year, only a few million businesses have registered, while an estimated 28 million covered small businesses have yet to file,” the coalition stated in a July letter to the Senate Committee on Banking. “This compliance rate of less than 10 percent is a direct result of the general lack of awareness among business owners regarding the new rules. While the business community and FinCEN have gone to great lengths to educate small-business owners, it is clear additional time is needed. Absent a delay, millions of law-abiding citizens will be at risk of steep fines and criminal penalties come the end of this year.” LL
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