Plaintiffs ask Supreme Court to reject DOJ’s BOI request

The plaintiffs in the lawsuit that has delayed beneficial ownership information (BOI) reporting requirements asked the Supreme Court on Friday to reject the Justice Department’s (DOJ’s) effort to resume enforcing the law.

“The harm to the government of pausing the compliance deadline of this unprecedented reporting regime is minimal, especially in light of its own three-year delay,” the plaintiffs’ response read. “By contrast, mandating compliance during review would plainly cause irreparable injury to those forced to report, in the forms of unrecoverable compliance costs — which the government estimates to be in the tens of billions — and constitutional injury to their First and Fourth Amendment rights from being compelled to disclose their associations and other private information.”

The response notes that the Corporate Transparency Act (CTA), an anti-money-laundering initiative, was enacted in 2021, meaning that Treasury’s Financial Crimes Enforcement Network (FinCEN) could have begun enforcement in 2022. Instead, FinCEN set a reporting deadline for three years later.

In its Dec. 31 application to set aside a federal district court’s injunction blocking the government from enforcing the CTA, the DOJ said the government is likely to succeed in its case.

“The Act’s reporting requirements are important to the government in preventing, detecting, and prosecuting crimes such as money laundering, tax fraud, and the financing of terrorism,” the DOJ wrote.

“The requirements therefore fall comfortably within Congress’s authority under the Commerce Clause to regulate economic activities (here, the anonymous operation of business entities) that substantially affect interstate commerce.”

The AICPA has posted a statement on its BOI reporting resource center saying it “advises gathering required information and being ready to file if the injunction is lifted.”

FinCEN has estimated that over 32 million reporting companies will be required to file BOI reports.

The legal back and forth

A federal district court issued the injunction in Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478 (E.D. Texas 12/3/24). Under the injunction, the CTA and the BOI reporting rule could not be enforced, and reporting companies would not need to comply with the Jan. 1, 2025, BOI reporting deadline pending a further order of the court.

The DOJ, which filed a notice of appeal two days later, had asked the Fifth Circuit to rule on its request for a stay by Dec. 27 “to ensure that regulated entities can be made aware of their obligation to comply before Jan. 1, 2025.”

Initially, a panel of judges on the Fifth Circuit said that “the government has made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality” and set aside the injunction. But three days later, another Fifth Circuit panel — comprised of the judges who will consider the appeal — reinstated the injunction.

It was then that the DOJ filed its request with the Supreme Court. There is no timetable for a ruling.

Background on the CTA

Under the CTA, reporting companies must disclose the identity and information about beneficial owners of the entities. For new entities incorporated after Jan. 1, 2024, reporting companies must also disclose the identity of “applicants” — defined as any individual who files an application to form a corporation, limited liability company, or other similar entity.

Willful violations are punishable by a fine of $591 a day, up to $10,000, and two years in prison with similarly serious penalties for unauthorized disclosure.

AICPA advocacy

The AICPA and state CPA societies have written numerous letters to Congress and FinCEN, urging a delay in the reporting deadline. A one-year delay in BOI reporting requirements was included in a proposed spending bill in the House of Representatives several weeks ago. But the version of the bill that passed Congress, avoiding a government shutdown, did not include any BOI deadline provisions.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.