Whipsaw BOI Rulings Leave Business Owners Dizzy: Injunction is Once Again Effective

by Prof. Robert Bloink and Prof. William H. Byrnes

Rulings on the new FinCEN beneficial ownership information (BOI) reporting requirements have been nothing short of dizzying in recent weeks.  The whipsaw rulings have many small business owners scratching their heads and wondering what will come next.  Under the Corporate Transparency Act (CTA), most American business owners were to become subject to a January 1, 2025 deadline for submitting their initial BOI reports.  The picture has now become significantly more uncertain for reporting companies.  The current status is that a Fifth Circuit merits panel has reversed a motions panel’s order that would have reinstated the BOI reporting obligations—so the injunction remains in place.  Reporting companies should pay close attention to the developing situation, which continues to evolve at a rapid pace as we enter the new year.

The Fifth Circuit Back-and-Forth

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide injunction to prevent enforcement of the BOI reporting rules.  The case was Texas Top Cop Shop, Inc., et al. v. Garland, et al.  The court enjoined enforcement of the CTA entirely, stating that the CTA itself is likely unconstitutional, so should not be enforced pending a full review and decision on the merits.

Shortly after, FinCEN announced that it would not issue penalties for failure to comply with the BOI reporting obligation but encouraged reporting companies to voluntarily submit their reports.

On December 23, a Fifth Circuit Court of Appeals motions panel lifted the injunction to reinstate the BOI reporting obligations while the government’s appeal was considered.  In response, FinCEN announced that businesses that would otherwise be required to comply by January 1, 2025, would have until January 13, 2025, to file their reports.

Just days later, on December 26, a merits panel of Fifth Circuit Court of Appeals nullified the earlier motions panel’s ruling and reinstated the original injunction.  The Fifth Circuit’s action was designed to prevent business owners from becoming subject to reporting obligations viewed as burdensome until the court had fully considered the merits of the parties’ arguments.  While the order gave very little information, the Fifth Circuit’s order did, however, state that the DOJ’s appeal remains on an expedited track.

Currently, it’s unclear if (and when) the BOI reporting obligations would be reinstated.  Oral arguments are now scheduled for March 25, 2025.

BOI Reporting Requirements: Background

If the injunction is eventually lifted, BOI reporting obligations would apply to nearly all domestic reporting companies.  Reporting companies include corporations, LLCs (including single-member LLCs), limited partnerships and any other entity formed by filing a document with a Secretary of State in the United States.  Reporting companies must identify and provide information about beneficial owners to FinCEN.

“Beneficial owners” include natural people who either 1) exercise substantial control over the company or 2) own or control 25% or more of the ownership interests in the company (whether directly or indirectly).  When making the determination of whether an individual owns or controls 25% of the business, the individual's options, convertible instruments and other similar equity rights are treated as though they have been exercised.

For each beneficial owner, the company must provide (1) full legal name, (2) date of birth, (3) address, (4) identifying number from the individual's ID (driver's license or passport) and (5) a copy of the ID used.  The reporting company itself must report the entity's (1) legal name, (2) any trade names or dba names, (3) principal place of business, (4) state of formation and (5) unique taxpayer ID number.

Absent the stay, entities created before January 1, 2024, were required to file their BOI reports before January 1, 2025.  Entities created after January 1, 2024, had only 90 days from the date their registration became effective to report the required information.

Starting in 2025, new entities were to have only 30 days from the date of creation to complete the BOI reporting form.  The 30-day clock would begin to run on the date the entity gains actual knowledge that its registration is effective, or the date when registration is published publicly.

Conclusion

The bottom line is that reporting companies should closely monitor the status of the case.  While FinCEN did signal that it would extend applicable deadlines should the BOI reporting obligations be reinstated, it’s unlikely that any extension would be significant given that the initial extension was only 13 days.  Reporting companies should continue to prepare to report if conditions change.

Your questions and comments are always welcome. Please post them at our blog, AdvisorFYI, or call the Panel of Experts.