Alert

BOI Reporting Penalties Suspended, No Need to File? Not So Fast

March 5, 2025

The U.S. Department of Treasury has suspended all penalties and fines for beneficial ownership information (BOI) reporting under the Corporate Transparency Act (CTA) for U.S. citizens and domestic reporting companies. If there are no penalties or fines for failing to file BOI reports, why would anyone file?

The CTA is a law enacted by Congress in 2021. Treasury does not have the authority to repeal the CTA or authorize reporting companies not to file BOI reports. Thus, a reporting company that fails to comply with the BOI reporting requirements is violating the law, even if such violation carries no sanctions with it.

What are the consequences of violating the law when there are no sanctions? At a minimum, a reporting company that is in violation of the BOI reporting requirements cannot represent that it is not in violation of any law. Why does this matter? The reporting company may have an outstanding loan or other agreements with a covenant that requires the reporting company not to be in violation of the law. Such a violation may constitute a breach under the loan or agreement. Outside the loan context, for example, the reporting company may be a lessee under a lease agreement that requires the tenant to be in compliance with the law at all times.

A violation of the BOI reporting requirements could lay dormant for years only to be resurrected during due diligence in a merger or acquisition transaction. Technically, the counter-party might be able to use this technical violation as a way to get out of the transaction without consequences. Further, a law firm would not be able to issue a “no violation of law” opinion in the context of this type of transaction or other transactions. Even if the acquiring company (and any company providing financing for the acquisition) agreed to move forward with the acquisition notwithstanding the BOI reporting violation, it may reduce the acquisition price in light of such violation.

FinCEN extended the deadline for the majority of reporting companies to file initial, updated, and/or corrected BOI reports to March 21, 2025. While FinCEN may have the authority to extend the filing deadline, it cannot do so indefinitely without frustrating Congressional intent. Moreover, what is the justification under the CTA for relieving U.S. citizens and domestic reporting companies from penalties and fines while not providing such relief to resident aliens, non-resident aliens, and foreign reporting companies? Treasury’s position of not imposing penalties or fines is certainly welcomed, but Congressional action is needed to prevent reporting companies that do not comply with the BOI reporting requirements from being in violation of the laws once the reporting deadlines have passed.