U.S. Treasury Delays Beneficial Ownership Reporting Deadline Amid Legal Challenges & Compliance Gaps

U.S. Treasury Delays Beneficial Ownership Reporting Deadline Amid Legal Challenges & Compliance Gaps

Edited by: TJVNews.com

The U.S. Treasury Department has announced an extension of the filing deadline for millions of small businesses to submit their Beneficial Ownership Information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN). Initially set for January 1, 2024, the new deadline has been pushed to January 13, 2025. This delay follows significant legal challenges and widespread concerns about compliance and awareness among affected businesses. According to a December 26^th report on CNBC, the decision reflects both the complexity of the Corporate Transparency Act (CTA) requirements and the logistical hurdles small businesses face in adhering to them.

As CNBC reported, the BOI requirement was introduced under the Corporate Transparency Act (CTA), a landmark piece of legislation passed in 2021 aimed at increasing transparency and combating illicit financial activities like money laundering and tax evasion. The rule mandates that millions of small businesses, including certain corporations, limited liability companies (LLCs), and other entities, disclose detailed information about their beneficial owners to FinCEN.

Noncompliance with the BOI reporting requirements carries significant penalties. Businesses face civil fines of up to $591 per day, adjusted for inflation, as well as criminal fines that could exceed $10,000. Additionally, noncompliance could lead to imprisonment of up to two years.

However, the CNBC report highlighted that many small businesses are exempt from the reporting requirements. For example, businesses with more than $5 million in gross sales and 20 or more full-time employees are not required to file a BOI report.

The Treasury Department’s decision to delay the BOI reporting deadline follows a significant legal challenge. On December 3, 2023, a federal court in Texas issued a preliminary injunction blocking FinCEN from enforcing the BOI requirements nationwide. However, this ruling was reversed by the 5th U.S. Circuit Court of Appeals earlier this week.

According to the information provided in the CNBC report, the Treasury Department acknowledged that the preliminary injunction created uncertainty and limited businesses’ ability to meet the original January 1 deadline. On the FinCEN website, the agency stated: “Because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect, we have extended the reporting deadline.”

This acknowledgment shines a spotlight on the Treasury’s awareness of the practical challenges businesses face, especially smaller entities with limited administrative resources.

The CNBC report highlighted the concerningly low compliance rates with the BOI reporting requirement. As of December 1, 2023, only about 9.5 million filings had been submitted to FinCEN, representing approximately 30% of the estimated total of 32.6 million businesses required to comply.

This data, provided by FinCEN to the office of Rep. French Hill (R-Ark.), underscores a significant gap in awareness and readiness among affected businesses. Rep. Hill has been an outspoken critic of the CTA and has called for its repeal, arguing that the reporting requirements impose an unnecessary administrative burden on small businesses.

According to Daniel Stipano, a partner at Davis Polk & Wardwell, the low compliance rates likely stem from a lack of awareness: “Most non-exempt reporting companies have not filed their initial reports, presumably because they are unaware of the requirement.” Stipano emphasized that FinCEN has publicly stated that its primary goal is education, not enforcement. The agency aims to ensure that businesses understand their obligations rather than penalize those who are unintentionally noncompliant.

This stance provides a temporary sense of relief for small business owners who may still be grappling with the complexities of the CTA. CNBC highlighted that while financial penalties can be severe—reaching $10,000 in fines and potential imprisonment—these are unlikely to be applied broadly in the initial phase of implementation.

This lack of awareness raises serious questions about whether the Treasury Department and FinCEN have done enough to educate and inform businesses about their obligations under the CTA.

The Corporate Transparency Act was designed to curb the misuse of shell companies and other opaque corporate structures often exploited for money laundering, financing terrorism, and evading taxes. According to the report on CNBC, FinCEN views the BOI reporting requirements as a critical tool in enhancing financial transparency and accountability.

However, critics argue that the burden of compliance disproportionately falls on small businesses, many of which lack the resources to navigate the complex reporting requirements. Large corporations, which are often already subject to similar reporting standards, are largely unaffected by the CTA mandates.

The delay to January 13, 2025, offers small businesses additional time to understand and prepare for compliance with the BOI reporting requirements. The CNBC report stressed that business owners should not treat this extension as an opportunity to delay indefinitely but rather as a critical window to ensure they meet their obligations.

FinCEN is expected to ramp up its outreach efforts to raise awareness and provide guidance to businesses ahead of the new deadline. However, CNBC indicated that without significant improvements in communication and support, compliance rates are unlikely to see substantial increases.

CNBC clarified an essential point: the BOI filing is not an annual obligation for businesses. Instead, companies are only required to resubmit their BOI forms if there are updates or corrections to their previously filed information.

This streamlined approach reduces the administrative burden on businesses, particularly smaller entities with limited compliance infrastructure. However, CNBC warns that failure to provide accurate updates could still result in penalties under FinCEN’s enforcement framework.

One of the most significant clarifications provided by CNBC revolves around BOI filing exemptions. Many larger businesses and organizations are excluded from the requirements because they already furnish similar ownership data through other regulatory channels. Exempt entities include large corporations with over $5 million in annual revenue and more than 20 full-time employees, banks and credit unions, tax-exempt entities, including many non-profits, and public utilities.

CNBC reported that exempt businesses represent a sizable portion of the corporate landscape, but millions of smaller entities, such as Limited Liability Companies (LLCs) and closely held corporations, must still comply.

Businesses must also be mindful of their specific compliance deadlines, which depend on their date of formation:

Businesses formed before January 1, 2024 have until January 13, 2025, to file their initial BOI reports.

Businesses formed on or after January 1, 2025, must file their BOI reports within 30 days of registration or formation.

This staggered approach, as the CNBC report explained, is intended to reduce the immediate compliance burden while still pushing for eventual full compliance across all reporting entities.

The CNBC report noted that ongoing litigation continues to cast a shadow over the CTA and the BOI reporting requirements. While the 5th U.S. Circuit Court of Appeals recently lifted a temporary injunction blocking enforcement of the rule, the broader constitutional validity of the Corporate Transparency Act remains unresolved.

Stipano highlighted to CNBC that judicial challenges have emerged in multiple jurisdictions, and it’s increasingly likely that one of these cases could reach the U.S. Supreme Court. The outcomes of these legal battles could reshape or even nullify the BOI reporting requirements.

Adding further complexity, the CNBC report pointed out that the incoming Trump administration, should it take office following the 2024 Presidential Election, may decide to change the federal government’s stance on the CTA entirely. Stipano suggested that the new administration could withdraw support for FinCEN’s enforcement actions, creating a scenario where the law’s future would hinge on shifting political priorities.

Given the delay, the CNBC report advises businesses not to treat the January 13, 2025, deadline as an opportunity for complacency. Instead, businesses should use this time to understand their reporting obligations under the CTA, assess their exemption status to determine whether they are required to file, gather necessary documentation about their beneficial owners, and stay informed about ongoing legal developments that could impact the BOI requirements.

FinCEN is expected to continue its educational outreach efforts, and the CNBC report encourages businesses to monitor updates from the agency closely.

The Corporate Transparency Act was designed to combat illicit financial activities such as money laundering, fraud, and terrorism financing by increasing corporate transparency. However, CNBC highlighted that the rule’s implementation has been fraught with administrative, legal, and logistical challenges.

While the Treasury and FinCEN have signaled flexibility and patience in enforcement, CNBC warns that the underlying legal uncertainty creates a challenging environment for businesses attempting to achieve compliance.

As CNBC reported, the next year will be crucial in determining the trajectory of BOI compliance requirements. With ongoing court cases, potential Supreme Court involvement, and the possibility of a new federal administration altering enforcement priorities, the fate of the Corporate Transparency Act remains in flux.