OMAHA (DTN) -- With days left until enforcement begins, a federal appeals court on Monday overturned a lower court's decision and reinstated rules requiring businesses, including farms, to file Beneficial Ownership Information (BOI) reports as required under the Corporate Transparency Act.
The latest ruling is one more step in what will likely end up in a Supreme Court case over the Corporate Transparency Act (CTA), which requires businesses to provide their ownership information to the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN).
A three-judge panel in the U.S. Fifth Circuit Court of Appeals rejected an injunction from early December by a federal judge in Texas that blocked rules for the Treasury rule. The panel, divided on parts of the ruling, also ordered an expedited hearing for oral arguments on the lawsuit.
The ruling reinstates Jan. 1, 2025, for enforcement of BOI requirements to begin. FinCEN, noting Monday's decision, stated that reporting companies "are once again required to file beneficial ownership information with FinCEN." With that, FinCEN delayed the reporting requirements for two weeks.
FinCEN DETAILS
Reporting companies that were created or registered before Jan. 1, 2024, have until Jan. 13, 2025, to file their initial beneficial ownership information reports with FinCEN. These companies would otherwise have been required to report by Jan. 1, 2025.
Reporting companies created or registered in the United States on or after Sept. 4, 2024, have until Jan. 13, 2025, to file their initial beneficial ownership information reports with FinCEN.
Reporting companies created or registered in the United States on or after Dec. 3, 2024, and on or before Dec. 23, 2024, have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond Jan. 13, 2025, as well.
BOI DETAILS
Congress passed the CTA as a way to reduce financial crime such as tax fraud and money laundering.
The BOI requirement applies to any small business that files documents to incorporate with their state business authority -- such as their secretary of state office. This includes corporations, limited partnerships and limited liability companies. Registered businesses must register any beneficial owner of the company with FinCEN.
Beneficial owners include anyone with a significant stake in the company, whether or not they have direct legal ties to the business. This may include holding at least 25% of a company's shares, having a similar level of control over the company's equity or holding significant influence over the company's decisions and operations (i.e., the authority to exercise substantial managerial control over the reporting company). Should a business partake in illegal activities, each such stakeholder is accountable for the crimes of the business.
Filings must include all personal information like addresses, birthdays and identification numbers for each owner. While this report does not have to be renewed after the initial filing, changes of address, new driver's licenses or changes of name all require updated filings. Since having control over a business' operations qualifies as beneficial ownership, a restructuring of job duties, even if the person does not have a legal ownership stake in the company, could also trigger requirements to file updates, the American Farm Bureau stated.
Businesses that fail to file, or do not update records when needed, could face criminal fines of up to $10,000 and additional civil penalties of up to $591 per day. Failure to file could also lead to felony charges and up to two years in prison.
APPEALS COURT RULING
The Fifth Circuit Court of Appeals, in its eight-page ruling, stated the federal government had made a "strong showing that it is likely to succeed on its merits of defending the CTA's constitutionality." The court cited that Congress has broad authority under the Commerce Clause to regulate economic activity.
The reporting requirement, the Fifth Circuit panel stated, falls within more than a century of Supreme Court rulings on the Commerce Clause.
The appeals court also did not see a significant burden for businesses in filing the paperwork.
The court cited the need to combat financial crimes outweighs the concerns of businesses fighting the filing requirement or costs to file. The court cites that "a typical simple company" would spend about 90 minutes (or about $85 worth of time) to complete and file the BOI report.
The appeals court also pushed back on the district court's "last-minute nationwide preliminary injunction," which the appeals court stated undermines the U.S. government's push to get other countries to reform their laws around money laundering funding terrorism.
"When balancing this harm against the public's urgent interest in combatting financial crime and protecting our country's national security, equity favors a stay," the court ruled.
See the Dec. 5 article, "Federal Judge Blocks BOI Rule," https://www.dtnpf.com/…
AFBF: FARMERS UNAWARE OF RULE
The court of appeals ruling could put tens of thousands of farmers in legal crosshairs for failing to register their businesses with the federal government, AFBF stated. AFBF had estimated more than 230,000 farm operations were affected by the BOI provisions.
"It's clear that many farmers aren't aware of the filing requirement because of lack of guidance and the government's poor public outreach," said AFBF President Zippy Duvall.
He added, "Farmers were given a reprieve from the filing deadline, but now, just two days before the holidays, when many families take a much-needed break from work responsibilities, the courts have reinstated the requirement. Unfortunately, thousands of farmers may unknowingly miss the deadline, putting their businesses at risk. We urge the government to grant an extension so more family businesses can comply with the rule."
Farmers are encouraged to contact an accountant or attorney if they are unsure whether they are required to file their business's BOI with FinCEN.
Also see, "What Farms Need to Know About BOI," https://www.dtnpf.com/…
NFIB: RULING WILL CAUSE CHAOS
The National Federation of Independent Businesses (NFIB), one of the plaintiffs in the lawsuit, expressed "extreme disappointment" over the Fifth Circuit ruling. While the deadline was pushed back two weeks, NFIB said millions of business owners will be scrambling to comply. Beth Milo, NFIB's executive director of the Small Business Legal Center said the ruling would cause "massive chaos for small businesses."
Milo added, "The district court, in granting the preliminary injunction, rightly recognized that the BOI reporting requirements would have devastating consequences for small business owners. Make no mistake, NFIB is already working to quickly appeal this terrible decision and provide our Main Streets with a reprieve from this harmful mandate."
For details on filing requirements, go to FinCEN, https://fincen.gov/…
The AFBF Market Intel report on BOI requirements: https://www.fb.org/…
Chris Clayton can be reached at chris.clayton@dtn.com
Follow him on social platform X @ChrisClaytonDTN
(c) Copyright 2024 DTN, LLC. All rights reserved.