*On December 3, 2024, this filing has been stayed by the United States District Court, Eastern District of Texas, Sherman Division in Texas Top Cop, Inc v. Merrick Garland, US Attorney General, Case Number 4:24-CV-00478.
The injunction is a premilimary injunction as part of the case. It is not necessarily permanent. The Court punted on the consitutional question and did not invalidate it at this point, namely, whether this filing requirement violates the U.S. Constitution. The Court focused on the harm caused in the preparation “and effort to make the required filing”. Id.
The Court took into consideration the following constitutional infringements: “Plaintiffs claim that the CTA violates three fundamental rights. First, the right to be free from laws that Congress does not have authority to enact (Dkt. #6 at pp. 9–19). Second, Plaintiffs allege the CTA and Reporting Rule violate their rights under the First Amendment (Dkt. #6 at pp. 19–25). And third, Plaintiffs contend that the CTA and Reporting Rule violate their rights under the Fourth Amendment (Dkt. #6 at pp. 25–27).”
The Court found this sufficient to order a preliminary injunction. The Court’s operative language is as follows:
“Enforcement of the Reporting Rule, 31 C.F.R. 1010.380 is also hereby enjoined, and the compliance deadline is stayed under § 705 of the APA. Neither may be enforced, and reporting companies need not comply with the CTA’s January 1, 2025, BOI reporting deadline pending further order of the Court.”
We file Beneficial Ownership Information Reports (BOIR) for $349 (straightfoward reports). The attorney-client privilege applies. Just assume your LLC, S Corporation, or partnership must file an BOIR with FinCEN. FinCEN is short for the Financial Crimes Enforcement Network, TreasuryDepartment’scriminal-enforcement bureau.
The Corporate Transparency Act (basis of the BOIR) “CTA” regulates “reporting company[ies],” defined as “corporation[s], limited liability company[ies], or other similar entit[ies]” that are either “(i) created by the filing of a document with a secretary of state or a similar office under the law of a State. . . .” 31 U.S.C. § 5336(a)(11)(A).
Interestingly, the Beneficial Ownership Information Report (BOI) gets filed with FinCEN, not the IRS. By requiring these disclosures, Congress aimed to prevent financial crimes like money laundering and tax evasion, which are often committed through shell corporations.
Broadly defined, a shell corporation is a legal entity with no (or minimal) employees, customers, business, or assets. Although shell corporations serve many legitimate purposes, it’s also possible to disguise the identity of interested individuals and the flow of money by layering shell companies on top of
each other, “such that each time an investigator obtains ownership records for a domestic or foreign entity, the newly identified entity is yet another corporate entity, necessitating a repeat of the same process[.]” Pub. L. 116-283 § 6402(4). This report can be cross referenced with tax return filings to uncover unreported income, and secret transactions. This is is a historical change in effective tax reporting that will likely adverserly affect millions of filers. Many taxpayers will probably ignore this critically important filing. We are pleased to offer our skills to you to ensure a proper filing and set your future trajectory on a clear path.
This is also known as Beneficial Ownership Information Reporting (BOI). It is designed to go after shell companies used by foreign actors, but, in reality, probes almost every domestic small business in the United States. This together with FinCEN’s ability to get banking records on just about anyone is testament to the U.S. government supreme oversight of everything.
Obviously, if domestic fraud is uncovered it will be prosecuted in some form with by the IRS, The Department of Justice, or some other agency (inter-agency sharing). Any fraud uncovered will likely be considered valid evidence even though it is outside the stated purpose to uncover funding for terrorists and money laundering.
In total, FinCEN estimates that the CTA applies to 32.6million currently existing entities and 5 million new entities formed each year from 2025 to 2034.
On February 14, 2024, Ms. Andrea Gacki, Director of FinCEN, testified to the House Committee on Financial Services that over 100,000 entities filed the report in the first week of opening, January 1, 2024. Ms. Gacki also testified that FinCEN is working with the IRS to possibly integrate BOI into the tax filing. Whether and when this will be done is unknown. Hindsight will prove that separate reporting with FinCEN was an error, similar to FBAR. In any event, we are pleased to provide this service.
There are 51 data points on the Beneficial Ownership Reporting.
Penalties for willful violations are $500 a day, up to $10,000, and criminal penalties could include up to two years of prison time.
UPDATE March 14, 2024: On March 1, 2024, the federal disctrict court in Alabama held that the Corporate Transparency Act is unconstitutional. However, entities should still file the BOIR. This is just an opinion at the federal district level, which is non-binding precendent. It does lay the groundword for an appeal ultimately to the U.S. Supreme Court. If the U.S. Supreme Court agrees then the BOIR will not need to be filed. However, it still must be filed in the meantime. There is no guarantee what the U.S. Supreme Court will do, FinCEN or Congress.
“Beneficial Owner”
A beneficial owner is defined as “an individual who . . . (i) exercises substantial control over the entity; or (ii) owns or controls not less than 25 percent of the ownership interests of the entity,” with some exceptions for children, creditors, and a few others. § 5336(a)(3). The definition of “substantial control” is as vague as it sounds—although it includes some clear categories like “senior officer[s],” FinCEN’s regulations “clarify” that a person with substantial control also includes someone who “[h]as any other form of substantial control over the reporting company” besides those listed. 31 C.F.R. § 1010.380(d)(1)(i)(D).
For new entities incorporated from January 1, 2024, onward, the CTA requires them to disclose the dentity and information of both Beneficial Owners and “Applicants,” defined as “any individual who files an application to form a corporation, LLC, or other similar entity under the laws of a State or Indian Tribe;
or registers [a foreign entity] to do business in the United States.” 31 U.S.C. § 5336(a)(2).
Reporting entities must give FinCEN a Beneficial Owner or Applicant’s full legal name, date of birth, current address, and identification number from a driver’s license, ID card, or passport. § 5336(a)(1), (b)(2)(A). Under the final rule, reporting entities are also required to submit an image of the identifying document. 31 C.F.R. § 1010.380(b)(1)(ii)(E). If any of that information changes, the reporting company
must update FinCEN, 31 U.S.C. § 5336(b)(1)(D), and FinCEN retains Applicant and Beneficial Owner information on an ongoing basis for at least five years after the reporting company terminates. § 5336(c)(1).