The Corporate Transparency Act (CTA) has been the focus of a significant development that has modified beneficial ownership information (BOI) reporting obligations. On Dec. 3, 2024, the federal district court for the Eastern District of Texas issued a preliminary injunction enjoining the federal government from enforcing the CTA anywhere within the United States. This development, occurring weeks before a looming filing deadline, impacts an entity’s requirements to file BOI reports that may require consultation with legal counsel to determine options now and in the future.
Corporate Transparency Act enactment and implementation
Originally enacted in January 2021, the CTA imposed a new requirement for the reporting of beneficial owners of applicable reporting companies. This reporting regime is operated by the Financial Crimes Enforcement Network (FinCEN), which is the Treasury Department bureau’s responsibility for protecting the U.S. financial system from illegal activity and ensuring U.S. national security interests through the collection and analysis of financial intelligence.
Although the CTA was enacted in early 2021, it included a deferred effective date contingent upon FinCEN publishing final rules. Those rules were finalized during 2023 with an effective date of Jan. 1, 2024. Reporting companies subject to BOI reporting were provided with varying due dates for filing, depending on their facts. Such due dates included:
- Pre-2024 entities. Reporting companies that were created before 2024 were required to complete their initial filings by Jan. 1, 2025.
- 2024 entities. Reporting companies created during 2024 were required to complete their initial BOI filings within 90 days of formation.
- Post-2024 entities. Finally, reporting companies created in 2025 and beyond are required to complete initial BOI filings within 30 days of formation.
Beyond the initial due dates noted above, reporting companies are subject to ongoing reporting obligations whenever specific types of information about the companies and their owners change. Accordingly, reporting companies are required to file updated reports within 30 days of any change in relevant information.
Action in the courts leads to a nationwide injunction
The CTA has been the subject of multiple court challenges since its enactment. In the most recent case, Texas Top Cop Shop, Inc. v. Garland, a group of plaintiffs asked a district court in Texas to declare the CTA unconstitutional. The court hasn’t yet answered that question but did conclude that the plaintiffs were likely to prevail and, therefore, issued a preliminary injunction enjoining the government from enforcing the provisions of the CTA against any entity, not just against the plaintiffs bringing the case. FinCEN subsequently announced that it intends to respect the injunction on a nationwide basis while it appeals the decision.
There have been a number of other court challenges to the CTA but with varied results. Courts in Virginia and Oregon concluded that the CTA is constitutional (Community Associations Institute v. Yellen and Firestone v. Yellen, respectively). In an Alabama case, National Business United v. Yellen, the court granted the plaintiffs’ motion for summary judgment and, in doing so, enjoined FinCEN from enforcing the CTA relative only to the plaintiffs involved in that case. All of these cases are on appeal.
What does this development mean?
The injunction is now in place, and it’s nationwide. Therefore, it appears that no entity is currently required to file any BOI reports. However, it’s important to note that the injunction could be modified by the district court or set aside by the Fifth Circuit Court of Appeals. Other courts could also impose further injunctions or hand down rulings declaring that the CTA is unconstitutional, which may fully negate the need to file for certain entities subject to the jurisdiction of that court.
If the injunction is reversed after an applicable reporting deadline has passed, then an entity would appear to be noncompliant with the CTA’s reporting requirements. While FinCEN has indicated that it will respect the injunction, companies that haven’t yet filed are presented with the choice of either filing a voluntary report now or potentially having to quickly file a report in the future if the injunction is lifted or modified.
Ultimately, it’s unclear whether companies potentially subject to the CTA will get permanent relief from the BOI reporting requirements from the courts. Given the significant civil and criminal penalties that are attached to BOI reporting, it’s important for entities to consult with their legal counsel to decide how to respond to these recent developments.
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