Legal Battle Over Beneficial Ownership Rule Intensifies as GOP States Defend Injunction

January 10, 2025

The attorneys general for 25 Republican-led states have filed a brief with the U.S. Supreme Court defending a court injunction against enforcement of the Corporate Transparency Act and the law's requirements that businesses, including farms, file Beneficial Ownership Information reports with the Department of Treasury.

The states' filing comes after the Biden administration asked the U.S. Supreme Court to overturn the injunction and allow reporting requirements to go into effect.

The Corporate Transparency Act (CTA), passed by Congress in 2021, would require businesses nationally to provide their Business Ownership Information (BOI) to the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCEN") by Jan. 1, 2025. The law was created to curb financial crimes such as money laundering.

It's estimated that the law's reporting requirements affect roughly 34 million businesses nationally, including roughly 230,000 farm operations.

Business groups sued in multiple jurisdictions to block the reporting requirements or overturn the CTA entirely. The law and courts have seen a flurry of action since early December over whether the law's requirements should go into effect.

The Biden administration filed an application with the Supreme Court on Dec. 31, 2024, seeking a stay, or delay of a nationwide preliminary injunction the Fifth Circuit Court of Appeals had reinstated in a case out of Texas. A federal judge from the U.S. District Court of Eastern Texas initially granted a nationwide injunction blocking the BOI rule on Dec. 3, 2024. The Fifth Circuit initially overturned that injunction on Dec. 23 -- allowing the law to go into effect -- but then reversed itself three days later and reinstated the injunction.

The Fifth Circuit has set March 25 for an "en banc" hearing, meaning each judge on the appeals court will participate.

The Texas case, known as "Texas Top Cop Shop," is led by a small business in Conroe, Texas, that sells tactical gear for first responders. The National Federation of Independent Business (NFIB) is a plaintiff in the lawsuit.

On Thursday, Jan. 9, 25 states led by West Virginia, Kansas and South Carolina, filed a brief with the Supreme Court backing Texas Top Cop Shop and asking the court to keep the injunction in place blocking the law's requirements from going into effect. The states cited that the CTA would "grant the federal government unprecedented control" over corporate law even though states have the authority to regulate corporations and their filing reports. The states also assert the Biden administration's request to the Supreme Court attempts to avoid the Fifth Circuit weighing in on the issues surrounding whether the federal government should have such oversight of corporate law. The states declare the federal government "reconceives the Commerce Clause power as reaching anyone who might eventually engage in commerce" as justification for the law.

In its own brief to the Supreme Court, the Biden administration stated the CTA's reporting requirements are important for the federal government to prevent, detect and prosecute crimes such as money laundering, tax fraud and the financing of terrorism. The federal government also cited that the requirements "fall comfortably within Congress's authority under the Commerce Clause to regulate economic activities." At a minimum, the Biden administration stated the High Court should narrow the scope of the injunction.

Supreme Court Justice Samuel Alito requested that any responses to the Biden administration's request to overturn the injunction be filed by the end of business Friday, Jan. 10.

Adding to the legal mix, yet another federal judge in Texas on Thursday issued a separate nationwide preliminary injunction halting enforcement of the BOI reporting requirements.

It's also unclear how the incoming Trump administration would handle the CTA and the court cases surrounding the law.

BOI DETAILS

The BOI requirement applies to any small business that files documents incorporating 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 stakeholder is accountable for the crimes of the business.

Filings must include all personal information like addresses, dates of birth 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.

Companies formed before Jan. 1, 2024, had until Jan. 1, 2025, to file their reports. Companies created in 2024 had 90 days to file their reports and companies formed after Jan. 1, 2025, have 30 days to file their BOI reports under the law.

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.

BEWARE OF FRAUD

Iowa's attorney general also warned Iowa businesses about reports of fake websites for registering their businesses under the CTA. The office warned that CTA registration does not include a registration fee, and any website demanding payment is a scam.

After reporting on BOI requirements and court cases, at least one email sent to DTN in the past week included a link seeking $100 for software to file BOI details.

The proper link to register a business is the FinCEN website: 

Source: DTN