The Uncertain Future of BOI Reporting After CTA Ruled Unconstitutional

ARTICLE | April 09, 2024

Title: Uncertainty Looms Over Beneficial Ownership Information Reporting Following Court Ruling

The Corporate Transparency Act (CTA), a legislation aimed at combating illicit financial activities, has recently been shrouded in uncertainty. The CTA, enacted by Congress in 2021, mandated uniform Beneficial Ownership Information (BOI) reporting requirements for certain businesses. However, a recent federal court ruling deemed this legislation unconstitutional, casting doubts over the future of BOI reporting.

The CTA was intended as a tool for the U.S. government to gather information necessary to prevent misuse of the U.S. financial system for activities such as money laundering, tax evasion, and human trafficking. To this end, the CTA authorized the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury, to collect and disclose BOI to authorized government authorities and financial institutions.

Under the CTA, all domestic entities and any foreign entity registered to do business in the United States were required to report BOI to FinCEN. The reported information included the legal name, any trading names, current street address of the U.S. place of business, jurisdiction of formation or registration, IRS taxpayer identification number, and type of BOI filing. Moreover, each beneficial owner or company applicant was required to disclose their name, date of birth, address, unique identifying number, and the name of the issuing state or jurisdiction.

However, on March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled that the BOI reporting requirement constituted Congressional overreach and was therefore unconstitutional. The ruling came in favor of the plaintiffs, Isaac Wilkes, a small business owner, and National Small Business United, a trade organization representing 65,000 members.

Following the ruling, FinCEN issued a statement indicating that it would comply with the court's order and not enforce the BOI reporting requirements against the plaintiffs. However, it also noted that all other reporting companies remain subject to the reporting mandate. Thus, businesses that are not members of the National Small Business United are still required to comply with the reporting requirements.

This ruling has left the CTA and BOI landscape in a state of flux, with the future of the legislation uncertain. While the current ruling only exempts the plaintiffs from the reporting requirements, it has raised questions about the constitutionality of the CTA and its potential impact on other businesses.

It is crucial to note that failure to comply with the BOI reporting requirements can lead to severe penalties, including civil penalties of $500 per day and criminal penalties that include a $10,000 fine and/or up to two years of imprisonment.

However, with the recent court ruling, businesses are left with a conundrum. On one hand, non-compliance risks civil and criminal penalties. On the other hand, the constitutionality of the CTA has been brought into question. As it stands, the situation is fluid and is almost certain to undergo further developments.

For now, businesses are urged to stay informed and vigilant as the situation develops. It is recommended to seek professional legal advice to navigate the complexities of this unfolding situation. As the dust settles on this landmark ruling, the future of the CTA and BOI reporting remains to be seen. Stay tuned for further updates as they arise.