The future of the Corporate Transparency Act (CTA) – which would have affected an estimated 32 million businesses across the U.S. – is uncertain after a preliminary injunction was issued to prevent its enforcement.
The U.S. District Court for the Eastern District of Texas ruled on December 3 that portions of the CTA overstepped constitutional boundaries and that such corporate regulations should be determined at a state level. The court also said that the CTA would place an excessive burden on businesses by requiring them to disclose beneficial ownership information (BOI) to the Financial Crimes Enforcement Network (FinCEN). The cost to businesses to comply with the rules in the first year alone was estimated to be more than $22 billion.
The CTA was passed in 2021 in a bipartisan effort to curb illicit financial activity. Businesses were allowed to voluntarily comply with the new BOI rules starting January 1, 2024, and millions of BOI reports have already been submitted. Mandatory compliance was to start in January 2025.
As long as the injunction remains in place, businesses that had not filed BOI information are not required to file but can do so voluntarily. Businesses that already filed aren’t required to take further action.
It’s widely expected that the decision will be appealed, but it’s not clear what approach will be taken when a new administration begins in January.
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