Beneficial Ownership Reporting Requirements Back on Hold – For Now

Federal appellate courts are deciding whether private companies must comply with beneficial ownership reporting requirements. As a result of a post-Christmas court decision, companies currently do not have to file beneficial ownership reports with the U.S. Treasury. But the situation is fluid and could change at any time.

Background

If you create or have created a corporation, limited liability company (LLC) or other similar entity by filing a document with a Secretary of State or similar office, you may be required to file beneficial ownership information with the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA).

You are subject to this beneficial ownership reporting if your company has 20 or fewer employees and did not file a federal income tax return reflecting more than $5 million in gross sales or receipts in the previous year.

5th Circuit Court Has Overturned Reporting Requirements – For Now

On Dec. 26, 2024, the U.S. Court of Appeals for the Fifth Circuit reinstated a nationwide preliminary injunction barring enforcement of the CTA and its associated beneficial ownership reporting rule.

The ruling temporarily prohibits FinCEN from enforcing the rule and its small business information reporting requirements. Therefore, reporting companies have no obligation to comply with the reporting deadlines, regardless of when the company was formed.

But the situation remains fluid. Six separate cases are pending in the federal court system challenging the constitutionality of the CTA, including a leading case out of the Eleventh Circuit where oral arguments were held on Sept. 27, 2024, and a decision is pending. Furthermore, on New Year’s Eve, the Department of Justice filed an emergency application with the U.S. Supreme Court requesting a stay (put on hold) of the nationwide injunction reinstated by the Fifth Circuit.

Meanwhile, FinCEN continues to accept voluntary beneficial ownership information reports.

NAHB encourages those small businesses that elect not to file in light of the reinstatement of the preliminary nationwide injunction to gather the necessary filing information, and be prepared to file in case the injunction is lifted or the government is successful in its appeal.