The Corporate Transparency Act (CTA) has been on a rollercoaster ride in the legal system, and businesses across the United States are feeling the turbulence. On December 26, 2024, the U.S. Court of Appeals for the Fifth Circuit reinstated a nationwide injunction halting enforcement of the CTA, just days after another panel of the same court had lifted it. This back-and-forth legal saga has created significant confusion for businesses preparing to comply with the CTA’s reporting requirements.
The CTA, enacted as part of broader anti-money laundering efforts, requires certain U.S. business entities to disclose their beneficial owners—individuals owning at least 25% of the company or exercising significant control. These disclosures, submitted to the Financial Crimes Enforcement Network (FinCEN), are intended to combat illicit financial activities like money laundering and terrorist financing.
The law initially set January 1, 2025, as the deadline for entities formed before January 1, 2024, to file their beneficial ownership information (BOI) reports. Non-compliance would have resulted in significant financial penalties.
Texas Top Cop Shop v. Garland, the most recent lawsuit challenging the CTA and its BOI Reporting requirement, has resulted in legal whiplash. Starting with the District Court granting an injunction for the plaintiffs, with the court expanding the scope nationwide (despite the plaintiffs never seeking a nationwide injunction), it has continued with recent rulings from the Fifth Circuit Court. Here’s a timeline of recent events in the case:
December 3
The District Court Injunction: The U.S. District Court for the Eastern District of Texas issues a nationwide injunction, halting enforcement of the CTA. The court questions the law’s constitutionality, citing concerns about federal overreach and the potential burden on businesses.
December 5
The Department of Justice files a Notice of Appeal with the U.S. Court of Appeal for the Fifth Circuit.
December 6
FinCEN announces that reporting companies are not required to file, but it will continue to accept voluntary submissions of BOI Reports.
December 11
The DOJ files a Motion to Stay Preliminary Injunction Pending Appeal with the District Court, asking the court to temporarily put the nationwide injunction on hold until the Fifth Circuit hears the appeal.
December 13
The DOJ files an Emergency Motion for Stay Pending Appeal with the Fifth Circuit, asking the court to put the nationwide injunction on hold. “The government respectfully requests a ruling on this motion as soon as possible, but in any event no later than December 27, 2024, to ensure that regulated entities can be made aware of their obligation to comply before January 1, 2025.”
December 17
The District Court denies the DOJ’s motion, reasserting the nationwide injunction, stating, “[E]ven assuming arguendo that the Government does have a substantial case on the merits, the equities here do not 'weigh heavily' in favor of granting a stay.”
December 23
The Fifth Circuit Stay: A Fifth Circuit motions panel temporarily stays the District Court’s injunction, allowing the CTA to go into effect and reinstating reporting requirements.
With the CTA back in effect, FinCEN announces that it is extending the BOI Reporting deadline to January 13, 2025.
December 24
The plaintiffs petition the Fifth Circuit for an emergency rehearing en banc.
December 26
The Reinstated Injunction: The Fifth Circuit vacates the stay, reinstating the nationwide injunction. The court explains its decision as preserving the “constitutional status quo” while it considers the substantive arguments in the ongoing appeal.
Throughout this legal uncertainty, FinCEN has adjusted its guidance to businesses. Initially, it extended the filing deadline to January 13, 2025, after the stay lifted the injunction. Following the reinstated injunction, FinCEN clarified:
“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.”
This statement leaves the decision to voluntarily file reports up to businesses, creating a dilemma for those seeking to avoid future compliance headaches.
With the CTA’s enforcement paused again, businesses are not required to file BOI Reports while the injunction remains in effect. The legal situation remains fluid, and it should be noted that neither the District Court nor the Circuit Court held that the CTA is unconstitutional… yet.
This legal saga is far from over. The Fifth Circuit issued an expedited briefing schedule, culminating in oral arguments on March 25, 2025. A decision might be rendered within a few weeks to a month after oral arguments are heard, pushing an outcome on the preliminary injunction to the end of April 2025 or early May 2025. The case then may head to the Supreme Court, or at a minimum, will be back in the District Court for the actual trial on whether the CTA is constitutional. With a new Presidential Administration set to begin in the interim, an Administration that initially vetoed the original bill containing the CTA (albeit purportedly for different reasons), the CTA’s fate remains uncertain.
For businesses, this “on and off-again” tale underscores the importance of staying proactive and prepared. If you have questions about the CTA, BOI reporting, or the implications of this ruling, contact us at JFCTA@jonesfoster.com.
The information provided in this article does not, and is not intended to, constitute legal advice; it is for general informational purposes only. No reader of this article should act or refrain from acting on the basis of this information without first seeking legal advice from counsel in the relevant jurisdiction to ensure the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation.
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