Court Injunction Temporarily Blocks Beneficial Ownership Information Filing Requirements (Updated)

UPDATE (12/27/2024):  The 5th Circuit Court of Appeals has today reversed itself and reinstated the nationwide injunction against enforcement of the Beneficial Ownership Information reporting.  See below for the entire saga.

UPDATE (12/23/2024):  On December 23, 2024, the US Court of Appeals for the 5th Circuit lifted the temporary injunction against the CTA/BOI filing requirements, meaning BOI is the law of the land again.  The filing deadline prior to penalties kicking in has been extended briefly to January 13, 2025.  National Federation of Independent Business and other plaintiffs have appealed this appeals court ruling.  Also, legislation (Repealing Big Brother Overreach Act) has been prepared for the new Congress to consider when it convenes in January, though if successful, it would not happen prior to penalty enforcement starting.  Stay tuned as this is a quickly changing story.

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction halting the enforcement of the Corporate Transparency Act (CTA) and its related Beneficial Ownership Information (BOI) filing requirements. This ruling temporarily suspends the obligation for nonprofits and other reporting entities to file BOI reports with the Financial Crimes Enforcement Network (FinCEN).

The injunction means that as of now, affected nonprofits are not required to file BOI reports. This includes nonprofit startups that have not yet secured 501(c)(3) status but might have otherwise been subject to these rules. FinCEN has confirmed that while the injunction is in effect, there will be no penalties for non-compliance.

The ramifications of this development are monumental.  Had the injunction not been issued, nonprofits subject to BOI reporting would have faced mandatory compliance deadlines starting January 1, 2024.  As we’ve discussed in previous articles, failure to file accurate and timely BOI reports could have resulted in severe penalties, including:

• Civil Penalties:  Fines up to $500 per day for non-compliance.  As the law was written, this penalty structure is indexed to inflation.  As it is, even though the penalty phase wasn’t set to kick-in until January 2025, the fines had already climbed to $591 per day.
• Criminal Penalties:  Willful violations could lead to criminal charges with fines up to $10,000 and imprisonment for up to two years.

These penalties would have applied to both nonprofit founders and key individuals responsible for maintaining the organization’s compliance records.

The federal court judge who issued the injunction made it sweeping and total for a reason.  In his legal opinion, the plaintiffs, which included the National Federation of Small Business (NFIB), were likely to prevail in a full trial.  Due to the national burden on the entire business landscape nationally, and that NFIB alone represented over 300,000 member companies, the judge determined the injunction had to be national.  Quoting Beth Milito, Executive Director of NFIB’s Small Business Legal Center,

This ruling is a huge victory for small businesses nationwide, and just in time.  For many Main Street small businesses, there were a mere 4 weeks away from the deadline to file their information in accordance with the CTA.  The BOI reporting requirements are a harmful invasion of small business owners’ privacy and a misuse of their valuable time.  Thankfully, the court agreed and granted a preliminary injunction, giving small business owners a reprieve from this burdensome rule.”

We agree.  While the stated outcome of the BOI reporting requirements was to prevent money laundering and other illicit financial crimes, the burden on small business and nonprofits was way out of proportion to the need.  The penalty structure was one of the most draconian ever established.  Given the lack of understanding that exists about these new requirements, it is estimated that only about 20% of businesses had complied as of the date of the injunction.  That means that potentially 80% of businesses in the US would have been hit with nearly $600 per day in fines starting in just a few weeks from now.  It would literally destroy the economy.

The Department of Justice, representing the U.S. Treasury Department, has filed an appeal against the court’s decision. If the appeal succeeds, the BOI filing requirements may be reinstated quickly, meaning nonprofits should be prepared for possible changes.

We expect the appeal to fail, but do NOT assume that is true.  It could just as easily be reinstated with due dates intact.

While the court case unfolds, here’s what we recommend:

What to Do Now:

• Stay Informed:  Keep track of updates regarding the court case and potential reinstatement of the BOI filing rules.
• Assess Readiness:  Review your nonprofit’s structure and records to ensure you are prepared if the filing requirement returns.
• Consult Experts:  If you’re uncertain about whether your nonprofit might be subject to BOI reporting in the future, seek legal or professional advice.

What Not To Do:

• Don’t File Prematurely:  There is currently no requirement to file BOI reports while the injunction is in effect.  Filing is entirely voluntary and we do not recommend doing so at this time.
• Don’t Ignore Future Developments:  The situation is fluid.  Failing to comply if the injunction is lifted could result in penalties later.

This injunction offers a temporary reprieve from a significant compliance burden for many nonprofits. However, the legal process is ongoing, and changes could happen quickly. We will continue to monitor the case and provide timely updates to help your nonprofit stay compliant and informed.