Practitioners are rightly confused about the status of the beneficial ownership information (BOI) reporting requirement in the Corporate Transparency Act (CTA), which has been in constant flux for the past month.
Let’s start from the beginning and discuss where we are now on December 27th.
Injunction Issued
On December 3, 2024, the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. vs. Garland issued a preliminary injunction that prohibited the enforcement of the CTA and its implementing regulations (including the BOI reporting rule), finding that the CTA and its implementing regulations are likely unconstitutional.
The injunction made BOI reporting discretionary, but a major concern was the rapidly approaching January 1, 2025 regulatory deadline for reporting companies formed before January 1, 2024 to file their initial BOI reports. If the injunction was stayed or overturned later in December, reporting companies would have little time to comply.
Congressional Confusion
Meanwhile, Congress had a December 20 deadline to pass a continuing resolution to fund the government. The initial compromise bill would have extended the January 1, 2025 deadline to January 1, 2026; however, due to massive opposition, the bill died, and Congress passed a much smaller bill with no BOI deadline relief.
Injunction Relief
The government had requested an emergency stay of the injunction in the Fifth Circuit Court of Appeals. On December 23, a three-judge panel issued a stay of the temporary injunction, bringing back mandatory BOI reporting.
Almost immediately after the stay, FinCEN announced that the January 1, 2025 deadline would be extended to January 13, 2025; other relief was granted to other companies with reporting deadlines impacted by the injunction.
Injunction Returns
Fast forward three days to the evening of December 26, and the Fifth Circuit reversed the stay, stating that the injunction should remain in effect while a different three-judge panel considers the merits of the government’s appeal.
As of December 27, 2024, at 9:30 ET, here is where BOI reporting stands:
There is a temporary injunction against the reporting rule, making BOI reporting discretionary nationwide.
If the injunction is lifted, reporting companies formed before January 1, 2024 must file their initial report by January 13, 2025 (unless FinCEN grants another short extension).
It remains my position that clients should be given information about the injunction, and they can decide whether to voluntarily comply or wait until the courts resolve the legal challenges. Taxpayers should have agency in their key business and tax decisions.
Tax practitioners can assist with the report filings, or only provide education about the reporting requirement. As the primary advisors to our small business clients, we have to help them navigate this mess the best we can, even if it is simply sharing the most up-to-date information available as the situation evolves.
Regular communication to our clients demonstrates to them that (1) we are up to speed on the issues facing their businesses and (2) we will not hesitate to communicate information that impacts their businesses. This communication further indicates a desire to be their advisor, not simply their return preparer.
Penalty Exposure is Minimal
BOI reporting penalties are only for willful violations: any person who willfully provides, or attempts to provide, false or fraudulent beneficial ownership information, including a false or fraudulent identifying photograph or document, or fails to report complete or updated beneficial ownership information is liable for a civil penalty of no more than $591 per day ($10,000 maximum), no more than two years imprisonment, or both. See 31 U.S.C. §5336(h)(1).
Concerning the willful FBAR penalty, Internal Revenue Manual 4.26.16.5.5.1 (06-24-2021) states that a willful violation is one in which a person knowingly violated a legal duty, recklessly violated a legal duty, or acted with "willful blindness" by making a conscious effort to avoid learning about a legal duty.
In the preamble to the final beneficial ownership information reporting requirements regulations, FinCEN stated the following concerning penalties (emphasis added):
Any assessment as to whether false information was willfully filed would depend on all of the facts and circumstances surrounding the certification and reporting of the BOI, but as a general matter, FinCEN does not expect that an inadvertent mistake by a reporting company acting in good faith after diligent inquiry would constitute a willfully false or fraudulent violation.
Due to the current legal uncertainties, I think it is safe to say that anyone who chooses not to comply at this time (in accordance with the injunction) but later complies within a reasonable timeframe after the deadline (assuming the injunction is later lifted) would not be subject to any penalty.
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