Understanding FinCEN and the Beneficial Ownership Reporting Requirements Under the Corporate Transparency Act

Beneficial Ownership Reporting Requirements

Under the CTA, many corporations, limited liability companies (LLCs), and similar entities are mandated to report specific information about their beneficial owners—individuals who directly or indirectly own or control at least 25% of the entity or exercise substantial control over it. The required information includes the beneficial owner's full legal name, date of birth, residential address, and a unique identifying number from an acceptable identification document. FinCEN began accepting these reports on January 1, 2024.

Nationwide Injunction and Its Implications

On December 3, 2024, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction, halting the enforcement of the CTA's reporting requirements. The Court's decision was based on concerns regarding the constitutionality of the Act, particularly its potential infringement on state sovereignty and the adequacy of privacy protections for the reported information.

The Department of Justice (DOJ) immediately appealed the injunction and on December 23, 2024, a panel of the United States Court of Appeals for the Fifth Circuit granted the DOJ’s request by issuing a stay on the injunction. This was short lived, consequently, as another panel on the Fifth Circuit vacated the Court’s stay of the preliminary injunction on December 26, 2024, thus leaving the BOI Reporting requirement uncertain.

In response to the injunction, FinCEN announced the suspension of the beneficial ownership information reporting requirement while the injunction remains in effect. This means that entities previously obligated to submit their beneficial ownership information are currently not required to do so. However, FinCEN has advised that entities should stay prepared to comply with the reporting requirements promptly if the injunction is lifted or modified.

Current Status and Recommendations

As of the posting of this article, the CTA's reporting requirements are on hold due to the nationwide injunction. Entities that fall under the CTA's scope should remain vigilant and prepared to comply with the reporting requirements if they are reinstated. It is advisable to monitor updates from FinCEN and consult with legal professionals to ensure readiness for any changes in the enforcement status of the CTA. Therefore, Prince Legal is prepared and available to guide you through this fluid and rapidly changing landscape. Reach out to us for expert support!