The December 3, 2024 U.S. District Court injunction halting enforcement of the Corporate Transparency Act (CTA), previously reported, was removed and then reinstated by the U.S.Court of Appeals. As such, compliance is still voluntary pending appeal. Detail below.

Background on the CTA

The CTA mandates that certain business entities report beneficial ownership information (BOI) to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). This requirement aims to prevent the misuse of anonymous shell companies for activities such as money laundering and tax evasion.

Recent Judicial Developments

December 3, 2024 Preliminary CTA Injunction: The U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, halting the enforcement of the CTA and its reporting requirements. The court expressed concerns about the constitutionality of the act, particularly regarding federal overreach into areas traditionally managed by states. See Court Temporarily Blocks CTA, Compliance Voluntary Pending Appeal
December 23, 2024, Preliminary CTA Injunction Lifted: U.S. Court of Appeals for the Fifth Circuit (“Fifth Circuit”) granted a stay of the District Court’s preliminary injunction, effectively reinstating the CTA’s enforcement of the ownership reporting requirements. In response, FinCEN extended the reporting deadline to January 13, 2025, acknowledging the need for additional compliance time.
December 26, 2024, Preliminary CTA Injunction Reinstated Pending Appeal: The Fifth Circuit vacated its previous stay, reinstating the nationwide preliminary injunction. This action suspends the CTA’s enforcement and reporting deadlines until the court can fully assess the substantive arguments concerning the act’s constitutionality.
Pending Appeal Spring 2025: the Fifth Circuit issued an expedited briefing schedule with a hearing Scheduled on March 25, 2025. Any legal opinion or other decision as to the constitutionality and enforcement of CTA will likely come after that date.

Current Status

As of now, entities are not required to file BOI reports with FinCEN. However, voluntary submissions are permitted. Businesses should remain vigilant and prepared to comply promptly should the injunction be lifted following the court’s forthcoming decision.

The FinCEN website Alert updated January 2, 2025, confirms that reporting requirements are still voluntary pending the U.S. Department of Treasury’s appeal:

“In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.

Current Status of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.) and Voluntary Submissions

The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering. The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.

On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), the U.S. District Court for the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction. The Department of Justice, on behalf of the Department of the Treasury (Treasury), filed a Notice of Appeal on December 5, 2024 and separately sought of stay of the injunction pending that appeal.

On December 23, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction entered in Texas Top Cop Shop, Inc., pending the outcome of Treasury’s ongoing appeal of the district court’s order. Treasury immediately issued an alert notifying the public of this ruling and recognizing that reporting companies may have needed additional time to comply with beneficial ownership reporting requirements, Treasury extended reporting deadlines. However, on December 26, 2024, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s December 23, 2024 order granting a stay of the preliminary injunction. On December 31, 2024, the Department of Justice, on behalf of Treasury, sought a stay of the injunction pending the ongoing appeal from the Supreme Court of the United States.

In the meantime, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. is once again in effect. FinCEN is complying with—and will continue to comply with—the district court’s order for as long as it remains in effect. As a result, reporting companies are not currently required to file beneficial ownership information with FinCEN. Reporting companies may continue to voluntarily submit beneficial ownership information reports.”

Alert: Ongoing Litigation – Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.) & Voluntary Submissions [Updated January 2, 2025]. See also the BOI filing website page.

Recommendations for Businesses

Companies should stay apprised of the status of the CTA

Stay Informed: Monitor updates from FinCEN to remain aware of any changes in the CTA’s enforcement status at:
- https://boiefiling.fincen.gov/fileboir

- https://www.fincen.gov/boi

Prepare Documentation: As a precaution, gather and organize the necessary beneficial ownership information to ensure readiness for potential compliance requirements.
Voluntary Compliance: Some businesses have already complied or may choose to voluntarily comply. These business, however, should continue to stay informed in the event, a court ruling alters existing compliance requirements.
Consult Legal Counsel: Seek advice from legal professionals to understand the implications of these developments and to ensure compliance with any future obligations under the CTA.

Conclusion

In summary, while the enforcement of the Corporate Transparency Act is currently suspended due to ongoing judicial review, businesses should stay alert and prepared for potential reinstatement of reporting requirements pending the court’s final decision.

To explore the broader implications of the ruling, see recent coverage Wall Street Journal and Reuters articles.