Breaking: Enforcement of Beneficial Ownership Information Reporting Requirement Blocked by Federal Court

December 5, 2024, Breaking News

Nationwide Preliminary Injunction: Reporting Companies Do Not Need to Comply with Upcoming Deadline

Earlier this week, a federal court in Texas granted a nationwide preliminary injunction blocking enforcement of the Corporate Transparency Act (CTA) and the rules adopted by the Financial Crimes Enforcement Network (FinCEN) that would have required corporations and LLCs to disclose and report their beneficial ownership information (BOI) to FinCEN by January 1, 2025. Beneficial owners are the individuals who own or control the company.

In other words, under the injunction order, reporting companies do not need to comply with the BOI reporting requirements, pending further action by the court.

It must be noted that this is a preliminary injunction, not a final decision. As such, it is a temporary pause. Business experts recommend that corporations and LLCs continue to monitor the situation and be ready to comply with the requirement if the injunction is lifted or they are otherwise revived, such as through an appeal, as the case moves forward.

The MAC Legal Affairs team will continue to monitor this situation closely and provide updates as needed.

Disclaimer: This article is meant to be information-only and does not constitute legal advice regarding any specific matter or situation. Legal information is not the same as legal advice, which is the application of law to an individual’s specific matter, situation, or circumstances. Legal advice may be given only on the basis of specific facts relayed by a client to an attorney. The MAC goes to great lengths to make sure our information is as accurate, useful, and up to date as possible. We recommend, however, that you consult an attorney if you want or need professional assurance that our information, and your interpretation of it, applies to your specific legal situation.

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November 2, 2024, Update

The MAC office has received calls from member offices with questions about whether a sole proprietorship with a “Doing Business As” name has to report. Below is an answer from FinCEN’s Frequently Asked Questions webpage regarding Beneficial Ownership Information:

Failure to Report Has Significant Penalties, Including Fines of Up to $500 Per Day!

What You Need to Know

The Corporate Transparency Act (CTA), effective January 1, 2024, requires many U.S. businesses – including the vast majority of chiropractic practices – to disclose information regarding owners.
Failure to comply can result in significant penalties, including fines (up to $500 per day) and imprisonment of up to two years.
Entities that existed before January 1, 2024, must file their Beneficial Ownership Information (BOI) report no later than December 31, 2024.
The Report can be filed online free of charge, and in most cases can be completed without the assistance of a legal or tax professional.

Help & Resources from the Financial Crimes Enforcement Network

If after reading these resources you still have questions, please contact the MAC’s Tim Gaughan at tim@chiromi.com or (517) 367-2225.

November 2024 Update – Constitutional Challenges

In June, a complaint was filed in federal court in Oregon challenging the constitutionality of the CTA. The plaintiffs asked for a preliminary injunction against enforcing the Act. In September, the preliminary injunction was denied, as the court found the plaintiffs’ constitutional challenge unlikely to succeed.

This finding conflicts with a previous ruling from Alabama, which found the Act unconstitutional, but only applied the ruling to the specific plaintiffs involved. That decision is under appeal, and arguments were heard on September 27, 2024. Similar cases challenging the CTA constitutionality are pending in federal district courts, including one filed by the Small Business Association of Michigan. Other actions have been filed in Ohio, Maine, Massachusetts, Texas, and Utah.

With conflicting rulings in different federal courts, it appears likely that appellate courts, perhaps up to and including the U.S. Supreme Court, will have to weigh in on the question of whether the CTA is constitutional. However, according to attorneys and business compliance experts, it also appears that the likelihood of an injunction relieving business owners from filing a report happening prior to the end of the year is remote, at best. Since the reporting requirement is in effect until a nationwide (or statewide, if the Michigan case moves forward) stay is issued, compliance is an essential component of risk management for your practice. The MAC Legal Affairs team recommends that the time for “waiting to see what happens” has passed, and it is time to get started now to prepare a BOI report for filing to maintain your business’ compliance.

Stay tuned for more information as it becomes available.

Introduction

In early August, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) announced the launch of a public service announcement (PSA) campaign as part of its ongoing efforts to educate the small business community about new beneficial ownership reporting requirements that came into effect January 1, 2024. It has been estimated that more than 80 percent of the more than 32 million small businesses that must report do not even know the requirement exists, putting them at risk of huge fines and additional penalties!

If you own your own business, it is critical that you familiarize yourself with the requirement and make a plan to report your Beneficial Ownership Information.

Companies formed prior to January 1, 2024, have until January 1, 2025, to report.
New entities formed in 2024 must report within 90 calendar days.
New entities formed after January 1, 2025, must report within 30 calendar days.

As we have previously reported, in 2021, President Biden signed into law the Corporate Transparency Act, anti-money laundering legislation creating a beneficial ownership information (BOI) reporting requirement. This requirement began January 1, 2024. Now, most companies in the United States will be required to report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) certain information about their “beneficial owners” (the individuals who ultimately own or control the company).

Who Has to Report?

Your company may be required to report BOI if it is:

A corporation, LLC, or was otherwise created in the United States by filing a document with a secretary of state or any similar office under the law of a state or Indian tribe; or,
A foreign company and was registered to do business in any U.S. state or Indian tribe by such a filing.

Most chiropractic practices in Michigan will be required to report this information.

There are 23 types of entities that are exempt from reporting, including large companies (more than 20 full-time employees in the U.S. and more than $5 million in gross receipts/sales from sources within the U.S. on its previous year tax return), heavily regulated companies (banks, credit unions, etc.), and 501(c)(3) tax exempt entities. For more information, see the FinCEN Small Entity Compliance Guide.

What/Who is a Company’s Beneficial Owner?

A beneficial owner is an individual who either directly or indirectly:

Exercises substantial control over the reporting company, or
Owns or controls at least 25% of the reporting company’s ownership interests.

For more information, such as what constitutes “substantial control,” see the FinCEN Frequently Asked Questions. Also, FinCEN’s Small Entity Compliance Guide provides checklists and examples that may assist in identifying beneficial owners.=

How Do Required Entities Report?

Reports will be required to be made electronically through FinCEN’s website: www.fincen.gov/boi. This site is intended to be secure and nonpublic, and there is no fee for submitting the form.

When Should Entities Report?

FinCEN began accepting BOI Reports on January 1, 2024. Reports are required based on the following timeline:

If the company was created/registered prior to January 1, 2024, you have until January 1, 2025, to report BOI.
Companies created/registered in 2024 will have 90 calendar days from the date of receiving actual or public notice of their creation/registration becoming effective to file their initial report.
Companies created/registered on or after January 1, 2025, will have 30 calendar days to file their initial BOI reports with FinCEN.
Any updates or corrections to BOI previously filed with FinCEN must be submitted within 30 days.

Table 1. Reporting Deadlines

Date of Company Formation	Deadline to File
Before January 1, 2024	January 1, 2025
January 1, 2024, through December 31, 2024	Within 90 Calendar Days
On or After January 1, 2025	Within 30 Calendar Days

Updates/revisions required within 30 calendar days. Failure to meet reporting deadlines can result in civil or criminal penalties, including fines or imprisonment (see below).

What Information Must Be Reported?

Non-exempt reporting companies will be required to submit three types of information:

Company information (name, address, jurisdiction of formation/registration, Tax ID number or the like, etc.)
Beneficial ownership information (full legal name, date of birth, complete current address, unique identifying number, issuing jurisdiction, and image of an identification document issues by the state, etc.)
Company Applicant information (for companies created on or after January 1, 2024)

How Should Reporting Companies Prepare?

Most chiropractic practices do not have complex ownership structures, so preparing to report should not be a major compliance undertaking. In preparation, practices should:

Determine if the practice is a “domestic reporting company” or if it qualifies for an exemption (most will not).
Determine the company’s “beneficial owners” who should be included in the filing.
Determine the company officers who exercise “substantial control” over the practice and will need to be included in the filing.
Update processes to monitor beneficial ownership information to ensure ongoing compliance. For example, if the owner moves, sells, etc.

Consequences of Noncompliance

Consequences can include:

Civil penalties of $500 per day,
Penalties of up to $10,000, and/or
Imprisonment for up to two years

Additional Information

FinCEN Beneficial Ownership Information Reporting Frequently Asked Questions (includes general questions, the reporting process, reporting companies, beneficial owners, reporting requirements, the initial report, and more)
US Department of Treasury short introductory video, An Introduction to Beneficial Ownership Information Reporting Requirements
FinCEN video, Learn More about Beneficial Ownership Information Reporting Requirements
FinCEN Small Entity Compliance Guide (provides information to help small businesses comply with the reporting requirement)
Beneficial Ownership Information Reporting Rule Fact Sheet

Sources:

U.S. Department of Treasury Financial Crimes Enforcement Network, An Introduction to Beneficial Ownership Information Reporting

FinCEN’s beneficial ownership information reporting webpage, https://www.fincen.gov/boi

U.S. Department of Treasury Press Release, “Treasury’s FinCEN Launches Nationwide Public Service Announcements to Inform Business Owners about Beneficial Ownership Reporting Requirements,” August 8, 2024