In a last-ditch effort to revive beneficial ownership information reporting requirements for small businesses, the federal government is asking the Supreme Court to reverse an injunction on the Corporate Transparency Act ordered just days before the reporting deadline.
On Dec. 31, 2024, the U.S. Attorney General and the Department of Treasury petitioned the Supreme Court to lift a Dec. 26 Fifth Circuit Court of Appeals injunction that takes small-business owners off the hook to file a beneficial ownership information report. Just days before that order, a different Fifth Circuit panel reversed a Dec. 3 injunction ordered by a Texas federal district court.
Effective since Jan. 1, the Corporate Transparency Act requires incorporated small businesses with 20 or fewer full-time employees to submit beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). The reporting requirement was specific to corporate entities such as S Corps or LLCs. It did not apply to unincorporated businesses like sole proprietorships.
Initially, companies formed before Jan. 1, 2024, had until Jan. 1, 2025, to submit that report. Businesses formed after Jan. 1, 2024, had 90 days from formation to file, and companies formed after Jan. 1, 2025, would have a 30-day window.
Congress passed the Corporate Transparency Act in an effort to combat criminal and terrorist organizations, which often use shell companies to finance their illegal activities. People behind those shell companies are usually hidden. Mandating a beneficial ownership information report is an attempt to identify the bad actors of those shell companies.
“Congress determined that requiring companies to report information about their owners would enable the government to detect and prosecute financial crimes, discourage the use of shell companies to conduct illicit activity and facilitate the government’s national security and intelligence efforts,” the federal government stated in its Supreme Court application.
For more information about the Corporate Transparency Act and beneficial ownership information reporting, click here.
Several lawsuits challenging the Corporate Transparency Act have been filed in federal courts claiming the law is unconstitutional. In three of those lawsuits, the courts denied preliminary injunction. Last March, an Alabama federal district court ordered an injunction in the National Small Business Association’s case. However, the order applied only to the plaintiffs.
On Dec. 3, a Texas federal district court ordered an injunction lifting beneficial ownership information reporting requirements for all affected small businesses, finding the plaintiffs are likely to succeed in their claims of unconstitutionality. Two days before Christmas, a Fifth Circuit motions panel reversed that injunction after it found that the government would likely succeed in its claims. But three days later, a merits panel reversed that reversal, taking small businesses off the hook to file a report just days before the Jan. 1 deadline.
In its Supreme Court application, the federal government argues that the injunction will inflict irreparable harm. Conversely, reversing the injunction will have a minimal impact on small businesses, as beneficial ownership information reporting is fairly quick, simple and does not include any fees.
“(The injunction) prevents the government from executing a duly enacted act of Congress, impedes efforts to prevent financial crime and protect national security, undermines the United States’ ability to press other countries to improve their own anti-money laundering regimes and severely disrupts the ongoing implementation of the act,” the government said. “By contrast, the act imposes only minimal burdens on respondents.”
Although the government is asking for a full reversal of the injunction, it’s informed the Supreme Court that at minimum, a narrower injunction should be applied to only plaintiffs in the case rather than a blanket nationwide injunction.
Plaintiffs in the case include a firearms dealer, an IT company, a dairy farm, the Libertarian Party of Mississippi and the National Federation of Independent Business. Their response to the federal government’s Supreme Court application is due by Friday, Jan. 10. Oral arguments at the Fifth Circuit for the merits of the constitutionality of the Corporate Transparency Act are set for March 25.
Several outcomes are possible. If the Supreme Court punts on the case or rules in favor of the plaintiffs, the beneficial ownership information report injunction remains in place. The high court could either lift the injunction in its entirety or apply it to only the plaintiffs, in which case new deadlines for reporting will likely be established.
In the Fifth Circuit, the merits panel faces a similar task. It could either reverse the district court’s finding and lift the injunction or affirm the decision and keep the injunction in place as the case plays out. The appellate court could also choose to narrow the injunction. That decision is not expected until spring.
In the meantime, FinCEN is encouraging business owners to voluntarily submit a beneficial ownership information report. To file beneficial ownership information, go to fincen.gov/boi. If you have any concerns about whether to file the beneficial ownership information, OOIDA recommends contacting your attorney. LL
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