Editor’s note: This article has been updated to reflect the Fifth Circuit Court’s stay on December 23, which removed the nationwide injunction and that court’s subsequent reversal of its stay on December 26.
The Corporate Transparency Act (CTA) has been the focus of significant developments in December 2024 that have modified beneficial ownership information (BOI) reporting obligations. On December 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. However, on December 23, the Fifth Circuit Court of Appeals stayed that injunction and then subsequently reversed its own stay on December 26. The government announced that it intends to respect the injunction on a nationwide basis while it is still in place. These developments, occurring weeks before a looming filing deadline, are certain to cause significant confusion as entities continue to evaluate their requirements to file BOI reports. Such deliberations may require consultation with legal counsel to determine options now and in the future.
Background on CTA 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Originally enacted in January 2021, the CTA imposed a new requirement for the reporting of beneficial owners of applicable reporting companies.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 responsible 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.
Even though 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 January 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 January 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 has not 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.
On December 23, a motions panel of the Fifth Circuit Court of Appeals ordered a temporary stay of that injunction, effectively preventing the injunction from being applied until the Court hears the full appeal of the district court decision at a later date. That order also expedited the appeal to the next available oral argument panel, which will hear the case on its merits. That merits panel, just three days later, reversed the motion panel’s order staying the injunction. In doing so, the merits panel put the district court’s injunction back in place. The order vacating the prior stay noted that such action was intended to “preserve the constitutional status quo” until the court can fully consider both parties’ substantive arguments. The court has only just set a briefing schedule for the expedited appeal, so this story is far from complete.
There have been a number of other court challenges to the CTA but those have had 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, but none are in the Fifth Circuit.
What does this development mean?
The injunction is now back in place, and it is nationwide. When the injunction was first implemented, FinCEN announced that it would respect the injunction while continuing to accept voluntary filings. FinCEN subsequently announced that it will continue to respect the reinstituted injunction. Therefore, no entity is currently required to file any BOI reports, but they will still be permitted to file voluntarily. However, it is important to note that the injunction could be modified by the district court or modified/set aside by the Fifth Circuit Court of Appeals or the Supreme Court. 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 non-compliant with the CTA’s reporting requirements. In the brief window when the Fifth Circuit’s stay was in place, FinCEN indicated that it would provide extensions of between 12 and 21 days for most entities to file initial reports. Such relief was especially important given the looming January 1, 2025 due date for pre-2024 entities and the 90-day due date for entities formed during the fourth quarter of 2024. As developments continue to occur in the Fifth Circuit and Eastern District of Texas courts, it is possible that FinCEN will provide similar administrative relief if the injunction is lifted. However, the details of such future developments are uncertain.
Companies that have not 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 is unclear whether companies potentially subject to the CTA will get permanent relief from the BOI reporting requirements from Congress or the courts. Given the significant civil and criminal penalties that are attached to BOI reporting, it is important for entities to consult with their legal counsel to decide how to respond to these developments.
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