Taxable Talk

In a move that surprises absolutely no one, the United States has appealed the preliminary injunction issued by Judge Amos Mazzant against the Corporate Transparency Act (CTA) and Beneficial Ownership Information (BOI) reporting.  The appeal is to the Fifth Circuit Court of Appeals in New Orleans.  The Fifth Circuit can leave the injunction in place until the court rules on the appeal or suspend the injunction (most likely, the injunction will stay in place for now).  An appeal will take some time to be heard (measured in months).

There has already been one case regarding CTA/BOI reporting heard at the federal appellate level.  There are numerous lawsuits challenging the CTA/BOI reporting in courts from Oregon (where a judge denied a preliminary injunction) to Florida.  I strongly believe that some CTA/BOI reporting case will be heard by the Supreme Court in 2026 (possibly sooner if we get a quick decision on this appeal that differs from the eventual ruling in the case already heard in the Eleventh Circuit).

As of today, no one is required to file a BOI report.  You can still voluntarily file your report.

A Texas court today issued a nationwide injunction against the Corporate Transparency Act and Beneficial Ownership Information (BOI) reporting.  Judge Amos Mazzant of the Eastern District of Texas issued the sweeping ruling in Texas Top Cop Shop, Inc. v Garland; the court’s summary of its 79 page ruling states:

In the matter before the Court, Plaintiffs challenge an unprecedented law known as the Corporate Transparency Act (“CTA”). It represents Congress’s attempt to combat bad actors’ ability to cloak their criminal activities in a veil of corporate anonymity. At its most rudimentary level, the CTA regulates companies that are registered to do business under a State’s laws and requires those companies to report their ownership, including detailed, personal information about their owners, to the Federal Government on pain of severe penalties. Though seemingly benign, this federal mandate marks a drastic two-fold departure from history. First, it represents a Federal attempt to monitor companies created under state law—a matter our federalist system has left almost exclusively to the several States. Second, the CTA ends a feature of corporate formation as designed by various States—anonymity. For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government. As a result, Plaintiffs contend that the CTA violates the promises our Constitution makes to the People and the States. Despite attempting to reconcile the CTA with the Constitution at every turn, the Government is unable to provide the Court with any tenable theory that the CTA falls within Congress’s power. And even in the face of the deference the Court must give Congress, the CTA appears likely
unconstitutional. Accordingly, the CTA and its Implementing Regulations must be enjoined.

Now, I am not an attorney, so it may be that this injunction is only for the plaintiffs involved. However, my non-attorney view doesn’t see any limitations in the ruling.  The attorney who posted this on Twitter/X stated, “Texas court enters nationwide injunction…,”  so it likely is such a ruling. Of course, this ruling came out today; it’s probable that FinCEN may not have even read it yet!  Additionally, it’s certain to be appealed.  (The appeal in the 11th Circuit Court of Appeals, NSBU v Yellen, was heard in September; no decision has come out yet.)  It’s a near certainty that this case (or NSBU v Yellen) will find its way to the Supreme Court in 2026.

I will update this post when FinCEN issues a statement on today’s ruling.

We’re over 80% of the way through 2024, and with that another deadline approaches: the January 1, 2025 deadline to file Beneficial Ownership Information (BOI) reports through FinCEN.  This morning, we filed ours for Clayton Financial and Tax LLC.  The entire process took less than ten minutes.

FinCEN offers both an online process and a pdf process; we used the online process. We had to scan our driver’s licenses (a photo would have been fine), and type our personal information (addresses, dates of birth) and our business information (address, state of formation). It’s a relatively easy process.

If you have a business entity registered with a state, you likely have this filing requirement; less than one-third of businesses that need to file have filed.  This requirement is by business, not by owner.  If you have five LLCs (each one holding a rental property), you must file five reports. Individuals can obtain a FinCEN identifier so that they don’t have to type in duplicative ownership information (and, instead, just type the identifier number).

The penalties on not filing BOI reporting are steep, so this isn’t something to sleep on.  While there are legal challenges to the reporting requirement, it appears that it’s far more likely to survive legal scrutiny than ultimately be found to be unconstitutional.

It is true that some businesses are exempt from filing (this is detailed in the FinCEN webpage on Frequently Asked Questions); however, most small businesses are not exempt.  If you have a business, you or your attorney should review the requirements and make sure you’re in compliance sooner rather than later.

On Friday, an Alabama federal judge ruled that the Corporate Transparency Act (CTA)–the law that authorized Beneficial Ownership Information (BOI) reporting–is unconstitutional.  As of today, this decision impacts one business in northern Alabama, but given an appeal is a certainty this could impact the BOI reporting regime.

Judge Liles Burke ruled that the CTA fell afoul of Congress’ powers.  “The Corporate Transparency Act is unconstitutional because it cannot be justified as an exercise of Congress’ enumerated powers. This conclusion makes it unnecessary to decide whether the CTA violates the First, Fourth, and Fifth Amendments.”  He opened the decision noting,

The late Justice Antonin Scalia once remarked that federal judges should have a rubber stamp that says STUPID BUT CONSTITUTIONAL. See Jennifer Senior, In Conversation: Antonin Scalia, New York Magazine, Oct. 4, 2013. The Constitution, in other words, does not allow judges to strike down a law merely because it is burdensome, foolish, or offensive. Yet the inverse is also true—the wisdom of a policy is no guarantee of its constitutionality. Indeed, even in the pursuit of sensible and praiseworthy ends, Congress sometimes enacts smart laws that violate the Constitution. This case, which concerns the constitutionality of the Corporate Transparency Act, illustrates that principle.

As of today, only the one company (and possibly the Northern District of Alabama) are impacted by this decision.  However, it’s a certainty that the decision will be appealed to the 11th Circuit Court of Appeals.  If that court upholds this ruling, BOI reporting will likely be dead.

To date, we’ve advised most of our clients to hold off on BOI reporting (unless they formed entities this year)–not because of possible constitutional issues; rather, we’re still waiting on guidance from FinCEN on community property issues related to BOI reporting.  Entities in existence as of 2024 have until January 1, 2025 to report.  Friday’s ruling adds another reason to delay BOI reporting.