Appellate court revives beneficial ownership information reporting for small businesses one week before deadline

Editor’s note: A legal challenge in Texas over the constitutionality of the Corporate Transparency Act is now working its way through the courts. Visit our latest article for the full update. 

A federal court of appeals has lifted a lower court’s ruling hitting the pause button on the Corporate Transparency Act, effectively reinstating beneficial ownership information reporting requirements for small businesses.

On Monday, Dec. 23, the Fifth Circuit Court of Appeals reversed a Texas federal district court’s Dec. 3 order of a nationwide preliminary injunction on enforcing the Corporate Transparency Act. The appellate court’s order puts beneficial ownership information reporting back into play just a few weeks after it was struck down and about a week before the Jan. 1 deadline. However, that deadline has been extended.

Effective since Jan. 1, 2024, the Corporate Transparency Act requires small businesses with 20 or fewer full-time employees to submit beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). Originally, companies formed before Jan. 1, 2024, had to submit that report by Jan. 1, 2025. However, FinCEN has extended that deadline to Jan. 13 in light of the two weeks when the district court’s preliminary injunction was active.

Companies formed after Jan. 1, 2024, but before Jan. 1, 2025, must submit information within 90 days. However, FinCEN has extended that deadline for recently formed companies as well. Businesses created on or after Sept. 4, 2024, that had a filing deadline between Dec. 3, 2024, and Dec. 23, 2024, have until Jan. 13 to file their initial beneficial ownership information reports. Businesses formed on or after Dec. 3 and on or before Dec. 23 have an additional 21 days from their original filing deadline.

Finally, the Corporate Transparency Act requires all companies created after Jan. 1, 2025, to file a beneficial ownership information report within 30 days of formation. That deadline has not changed.

To file beneficial ownership information, go to fincen.gov/boi. For more information about the Corporate Transparency Act, click here.

The Corporate Transparency Act and its beneficial ownership information requirements have resulted in confusion and controversy over the last 12 months, prompting lawsuits and action from some members of Congress.

At least two federal lawsuits challenging the new law have been filed. In March, an Alabama federal district court granted the National Small Business Association its motion for a preliminary injunction to stop the enforcement of beneficial ownership information. However, the injunction applied to only the association’s members, leaving the new reporting intact for the vast majority of affected businesses.

On Dec. 3, a Texas federal district court granted Texas Top Cop Shop’s motion for preliminary injunction, also finding the Corporate Transparency Act unconstitutional. This time, the nationwide injunction applied to everyone, effectively killing the new rule just shy of a month before the beneficial ownership information reporting deadline for the vast majority of small businesses.

The federal government filed an appeal to that decision and asked both the Fifth Circuit and the district court to reverse the injunction. Two weeks after the order was issued, the district court denied the government its bid to reinstate beneficial ownership information reporting, keeping small business owners who have yet to comply off the hook two weeks before the original deadline.

However, in an emergency motion to reverse the injunction, the Fifth Circuit revived the Corporate Transparency Act and its beneficial ownership information reporting requirements. FinCEN immediately reset the deadlines.

In its order, the appellate panel found that the federal government will likely succeed in its claims that the new law is constitutional, putting into question the fate of the two lawsuits.

The Fifth Circuit only ruled on the motion for a stay of the preliminary injunction. However, it also ordered that the appeal to the district court’s finding of unconstitutionality be expedited, setting the stage for that issue to be decided sooner rather than later.

For now, the majority of small-business owners are back on the hook to file beneficial ownership information reports by Jan. 13 or face hefty fines. LL