The Treasury Building
There are quite literally tens of millions of limited liability companies, partnerships, and other entities that are facing a year-end deadline to make the new Beneficial Ownership Information (“BOI”) as mandated by the Corporate Transparency Act (“CTA”) and the regulations of Treasury’s Financial Crimes Enforcement Network (“FINCEN”). Awash in these government acronyms are many private entities that have already filed and a veritable tidal wave of entities that are prepared or preparing to file by that deadline.
Or maybe not.
As this deadline has approached, over a dozen cases have been filed in the U.S. District Courts challenging the legality of the CTA and the BOI filing requirements. In one of these cases, Texas Top Cop Shop, Inc. v. Garland, E.D.Tex. No. 24-CV-478, Dkt. # 30 (Dec. 3, 2024), the U.S. District Court held that Congress in enacting the CTA overreached its powers under the Commerce Clause of the U.S. Constitution and the CTA, along with its implementing regulations, is therefore invalid. The ruling in that case includes the imposition of a temporary injunction to stop the Treasury Department (and thus FINCEN) from enforcing the CTA through its BOI filing requirements.
If you think that means “game over” for the BOI filing requirement for 2024 at least, you’d be absolutely wrong. The Treasury Department has already filed a Notice of Appeal to the U.S. Court of Appeals for the Fifth Circuit, which could hear the appeal on an expedited basis because of the looming deadline. Even when the Fifth Circuit decides the matter, there is then likely to be a further appeal to the U.S. Supreme Court. What the U.S. Supreme Court might or might not do with the CTA is anybody’s guess. The U.S. Supreme Court could uphold the CTA, invalidate the CTA, or take some intermediate step to effectively suspend the BOI filing requirement until the record is more fully developed, i.e., judicially punt on the issue. This would probably cause Treasury to give an additional grace period for filings until the constitutionality of the CTA has been finally determined.
Note that none of this is the fault of the Treasury Department or FINCEN. These are challenges to the passing of the CTA by Congress. At the end of the day, FINCEN has done nothing more than attempt to carry out the mandates of the CTA to the best of its ability. Personally, having frequently witnessed LLCs and other entities be misused by bad actors for nefarious purposes, I am generally supportive of the goals of the CTA. Sunlight is, after all, the best disinfectant and honest folks will never complain about having to disclose their activities.
Nonetheless, and irrespective of that preliminary injunction, a temporary suspension of the BOI filing requirement would not be a bad thing as it is increasingly clear that the FINCEN infrastructure for BOI filings has not been ready for prime time.
Consider that within a relatively short period of time, FINCEN had to set up a system that would take in tens of millions of filings from entities and also the function of assigning FINCEN identification numbers to individual persons who desired so as to make filings easier. This was a big task, and FINCEN is to be applauded for what they have accomplished so far.
In fact, I had an issue with a filing which was caused by an error of the BOI filing website. In this situation, I was able to contact FINCEN, advise them of the problem, and within a few days this issue had been corrected. While anecdotally there are other issues with the BOI system, this does show that FINCEN is actively attempting to work through these issues. As suggested by the national guru of BOI reporting, Kentucky attorney Thomas E. Rutledge of Stoll Keenon Ogen PLLC, even with all that is going on FINCEN should continue to collect and analyze information so as improve the system.
In the meantime, folks who have entities that are subject to reporting should continue to be prepared to file. It is entirely possible that the U.S. Court of Appeals, and perhaps even the U.S. Supreme Court, will invalidate the preliminary injunction and thus reimpose the January 1 filing deadline. For that matter, most folks should just go ahead and make the BOI filing and then quit worrying about it. In the event that the CTA is determined to be unconstitutional, the most likely thing to happen is that FINCEN will simply delete the data that it has accumulated and that will be the end of it. But I don’t expect that to happen in the absence of a huge about-face by the U.S. Supreme Court on the breadth of Congress’ powers under the Commerce Clause.
Stay tuned.