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A Separate Panel Of The Fifth Circuit Court Of Appeals Reverses Itself And Reinstates A Nationwide Reporting Ban
ANALYSIS
Update: On December 26th, a separate panel of the Fifth Circuit Court of Appeals reinstated the nationwide injunction. Compliance with FINCEN’s reporting requirements is voluntary pending further orders of the court. See earlier story below.
December 23, 2024 – Mandatory reporting of beneficial ownership information to the United States Treasury, Financial Crimes Enforcement Network (FINCEN), for corporations, LLCs, and other companies established through state filings is back on after a ruling by the Fifth Circuit Court of Appeals on Monday.
The ruling stayed a lower court decision from the Eastern District of Texas that had ordered a nationwide injunction against enforcement of the Corporate Transparency Act (CTA) and its January 1, 2025 beneficial ownership information (BOI) reporting deadline. Although the Texas court did not specifically rule that the CTA is unconstitutional, it did say that the CTA and the BOI Reporting Rule were likely unconstitutional because, in the Court’s opinion, they exceed Congress’ authority. The injunction halted reporting requirements nationwide pending the outcome of that litigation.
The Fifth Circuit panel disagreed and concluded that the CTA “is likely constitutional on its face” because it “at least operates constitutionally when it requires that corporations engaged in business operations affecting interstate commerce disclose their beneficial owner and applicant information.” In light of a December 23, 2024, Fifth Circuit Court decision staying the injunction, reporting companies are once again required to file beneficial ownership information with FinCEN.
Beneficial ownership information refers to identifying information about the individuals who directly or indirectly own or control a company established in any state by filing papers with a secretary of state or similar entity. Foreign entities that register to do business in the United States are also required to report.
In 2021, Congress passed the Corporate Transparency Act on a bipartisan basis. The law created a new beneficial ownership information reporting requirement as part of the U.S. government’s efforts to make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures.
Beneficial ownership information reported to FinCEN is exempt from disclosure under the Freedom of Information Act (FOIA).
FinCEN launched the BOI E-Filing website for reporting beneficial ownership information.
In response to the Texas litigation and subsequent appellate order, the Department of the Treasury extended the reporting deadlines as follows:
- Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
- Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
- Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
- Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.
There are also numerous exceptions to the filing requirements.
Plaintiffs in the Texas case, as well as plaintiffs in other related litigation are not required to file, nor are entities that were members of the National Small Business Association as of March 1, 2024.
The Texas case is only one of several cases that have challenged the CTA pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. In March, a federal district court in the Northern District of Alabama declared the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs in that litigation. The Department of the Treasury is appealing that decision.
Many states, including New York, have their own versions of beneficial ownership reporting requirements. The “New York LLC Transparency Act” was signed by Governor Hochul last December and will create a database of the beneficial owners of Limited Liability Corporations that will be accessible to government agencies and law enforcement. To protect the privacy of LLC members, the records will not be available on a public database. The New York LLC Transparency Act will become effective Jan. 1, 2026.
