STAY REVERSED THEN REINSTATED: Stay Aware of the Uncertainty and Changing Legal Requirements Related to the Corporate Transparency Act Filing Requirements
Earlier this month, we reported that the Corporate Transparency Act beneficial ownership reporting requirement had been stayed via a nationwide injunction - see article below. On December 23, 2024, the Fifth Circuit, holding that the government was likely to prevail on the merits of the litigation, stayed the preliminary injunction and reinstated the January 1, 2025 deadline for CTA filings. FinCEN then voluntarily extended the reporting deadline to January 13, 2025.
On December 26, in a startling reversal, the Fifth Circuit vacated the stay and reinstituted the injunction . The Financial Crimes Enforcement Network (FinCEN) has not yet issued a statement, but it is anticipated that it will comply with the injunction, while continuing to accept filings on a voluntary basis while the litigation is ongoing.
In light of the incredible amount of uncertainty about this matter, we recommend that entities that have not yet filed be prepared to file on short notice if the preliminary injunction is once again stayed or overturned, resulting in the January 13, 2025 deadline being reinstated or a new deadline being imposed on short notice. As noted by FinCEN, entities may file now despite the injunction if they choose to do so, and entities may wish to complete the filing so that they do not need to monitor the situation and to avoid high traffic to the filing website in the event a deadline is reimposed.
We recommend you go to Beneficial Ownership Information Reporting | FinCEN.gov to keep informed about the status of reporting requirements on this fast-evolving matter.
ORIGINAL POSTING:
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction halting the enforcement of the Corporate Transparency Act (CTA), and effectively pausing its January 1, 2025, compliance deadline.
The Corporate Transparency Act required businesses to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) as part of anti-money laundering and anti-terrorism efforts.
The decision - Texas Top Cop Shop, Inc. v. Garland et al.- raised constitutional questions about federal overreach and the financial burdens placed on small businesses by the CTA. Judge Amos L. Mazzant III granted the injunction, emphasizing the act’s potential violation of federalism principles and the Commerce Clause. The opinion makes the point that corporate regulation is traditionally under state jurisdiction. The CTA’s federal oversight would have disrupted this balance, pushing the boundaries of Congress’s authority under the Commerce Clause. Additionally, the judge relied upon First Amendment protections and Fourth Amendment privacy rights.
The ruling halts enforcement of the CTA across the country. So, for now, businesses are not required to comply with the CTA’s reporting requirements. However, if the Department of Justice (DOJ) appeals, the litigation could extend to higher courts. Keep apprised of recent developments in this area in the event reporting obligations change.