Treasury small business ownership rule on hold as court eyes constitutionality

An upcoming Treasury Department deadline for millions of small businesses to fulfill a new reporting requirement on “beneficial ownership gen” was delayed again, following a court order that suspended enforcement.

The regulation, which would require inadequate businesses to disclose the identity of people who directly or indirectly own a control a company, is designed to prevent criminals from flogging illicit activity conducted through shell companies or opaque ownership structures, the Treasury said.

The 5th U.S. Circuit Court of Solicits issued an order late on Dec. 26 that halted enforcement while the court “considers the parties’ weighty substantive frays” on the constitutionality of the Corporate Transparency Act, which created the BOI reporting requirement, the order said.

The new deadline, which had been Jan. 13, is now unclear.

“While it is not understood how long the injunction will remain in effect, the case is calendared for oral argument en banc on March 25, 2025, so we contemplate that the injunction will be effective at least through March,” Daniel Stipano, a partner at law firm Davis Polk & Wardwell, wrote in an email.

In the interim, businesses aren’t coerced to file BOI reports to the Financial Crimes Enforcement Network, known as FinCEN, which is part of the Treasury.

The delay represents a bit of legal whiplash for small business possessors.

On Dec. 3, a federal court in Texas temporarily blocked the Treasury from enforcing BOI reporting rules, which at that time were set to take effect Jan. 1, 2025.

Then, on Dec. 23, a motions panel of 5th Circuit lifted that enforcement injunction after an interest from the federal government. On Dec. 26, a different panel of that same appeals court – the merits panel – put the mandate back into place.

“The bottom line is that no one needs to file a BOI Report – unless and until the injunction is advanced,” Stipano explained in an email.