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Preliminary Ruling Passes to Block Beneficial Ownership Information Reporting Nationwide

Preliminary Ruling Passes to Block Beneficial Ownership Information Reporting Nationwide

On December 3, 2024, a Texas federal court issued a preliminary ruling blocking the Corporate Transparency Act (CTA) and its implementing regulations on a national basis. The CTA is part of the Anti-Money Laundering Act of 2020 (AML Act). This rule was created to strengthen the ability of the United States Department of the Treasury Financial Crimes Enforcement Network (FinCen) and other agencies to protect national security and combat money laundering, terrorist financing, tax fraud and other illicit activity.

The CTA required an estimated 32.6 million existing business entities disclose their beneficial owners to FinCen through Beneficial Ownership Information (BOI) reporting provisions. The reporting deadline for business entities was January 1, 2025. Under the CTA, access to BOI was to be granted to federal agencies engaged in national security, intelligence or law enforcement activities, as well as the U.S. Department of the Treasury in connection with its official duties, and state and local law enforcement agencies in connection with criminal or civil investigations.

The Texas court’s opinion stated the Constitution’s Commerce Clause cannot be leveraged to compel the disclosure of information for law enforcement purposes. Additionally, the CTA deviates from history by:

  1. Reflecting a federal attempt to monitor companies created under state law, and
  2. Ending a feature of corporate formation as deigned by various states – anonymity.

The opinion concluded that the CTA appears likely unconstitutional as outside of Congress’ power. Additionally, as the BOI Reporting Rule implements the CTA, it is likely unconstitutional for the same reasons.

Pursuant to the ruling, neither the CTA nor BOI Reporting Rule may be enforced and reporting companies do not need to comply with the CTA’s January 1, 2025, BOI reporting deadline, pending further order of the Court. If you have already complied with the law prior to the injunction, there is no further action to take currently. We will continue to provide updates as more information becomes available.

Posted In: Tax | Insights

About the Author - Sherry Cracium-Bolin, CPA

Sherry is a Tax Principal and Shareholder of Brown Plus. Having over 20 years of progressive public accounting experience, Sherry assists small and mid-sized businesses through tax planning, management advisory services and compliance services. She also specializes in tax planning and compliance for individuals, estates and trusts.

Sherry received her Bachelor of Science degree in Accounting from York College of Pennsylvania.

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