UPDATE 1/3/2025
As of January 3, 2025, the Corporate Transparency Act (CTA) remains unenforceable due to a nationwide injunction reinstated by the Fifth Circuit Court of Appeals on December 26, 2024. In response, the U.S. Department of Justice (DOJ) filed an emergency application with the Supreme Court on December 31, 2024, seeking to lift this injunction and allow the CTA’s enforcement to proceed during the ongoing appeals process. The Supreme Court has set a deadline of January 10, 2025, for the plaintiffs to respond to the DOJ’s request.
UPDATE 12/26/2024
A federal appeals court reinstated a nationwide injunction that blocks the enforcement of beneficial ownership information (BOI) reporting requirements. This decision reverses an earlier order issued by the same court earlier in the week.
In its latest ruling, the Fifth Circuit Court of Appeals stated that it was reinstating the lower court’s injunction “to preserve the constitutional status quo while the merits panel evaluates the parties’ significant substantive arguments.” The merits panel refers to the group of judges assigned to decide the appeal.
UPDATE 12/23/2024
The deadline for most reporting companies to file beneficial ownership information (BOI) reports was extended to Jan. 13, 2025, by the Financial Crimes Enforcement Network (FinCEN), hours after a Monday court ruling reinstated the reporting requirement.
The Fifth Circuit Court of Appeals granted a Department of Justice (DOJ) motion to lift an injunction put in place by a district court ruling Dec. 3 that the DOJ appealed.
UPDATE 12/18/2024
As of 12/03/2024, Judge Amos Mazzant of the United States District Court for the Eastern District of Texas issued a Preliminary Injunction Order enjoining all reporting requirements under the CTA. This means that parties subject to the CTA’s reporting requirements are no longer required to comply with the reporting requirements so long as the Preliminary Injunction Order remains in effect. However, this Preliminary Injunction Order is temporary, meaning that Judge Mazzant can issue a future order removing the existing Preliminary Injunction at any time. As expected, the Department of Justice filed a notice of appeal on 12/05/2024.
If you wish to comply with the CTA’s reporting requirements voluntarily, you are still free to file a Beneficial Ownership Information Report (“BOIR”) with the Treasury Department. If you do not wish to comply at this time, you are not required to file a BOIR until there is a resolution of Judge Mazzant’s Preliminary Injunction Order.
If your business is subject to the requirements of the CTA and the injunction is lifted, the business is required to file a BOIR.
On 12/03/2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily blocking enforcement of the Corporate Transparency Act (CTA) and the associated BOIR reporting rule. In effect, the ruling halts the requirement for reporting companies to disclose beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN) notwithstanding the January 1, 2025 due date for BOIR for reporting companies formed prior to 2024.
What is the Corporate Transparency Act (CTA)?
The CTA, enacted in 2021 as part of the Anti-Money Laundering Act, aims to combat financial crimes such as money laundering and terrorism financing. It requires many businesses—especially smaller, privately held companies—to file beneficial ownership information (BOI) with FinCEN. This information includes the names, addresses, dates of birth, and identification documents of individuals who directly or indirectly own or control at least 25% of the ownership interests of the reporting company; or any individual who exercises substantial control over the reporting company.
This initiative aims to create a national database to help national security and law enforcement agencies prevent the misuse of shell companies and other less-visible entities for criminal activities.
The CTA applies to many private and closely held businesses operating in the United States. This includes limited liability companies (disregarded or multi-member), corporations, non-profit corporations, partnerships, and associations. Although the CTA generally does not apply to trusts, such trusts may be beneficial owners of reporting companies such that settlors, trustees, trust protectors, or even beneficiaries may need to be reported in the BOIR.
Understanding the Corporate Transparency Act: A Guide for Business Owners
The Court’s Ruling on the Corporate Transparency Act
The decision was based on its judgement that the CTA and the reporting requirement likely violate constitutional protections and are likely “outside of Congress’s power”. The ruling is not a final determination of the CTA’s constitutionality; instead, it temporarily halts enforcement while the case proceeds. The court stated that enforcement of the BOIR reporting requirement under 31C.F.R. 1010.380 is hereby enjoined (meaning stopped), and the compliance deadline is stayed under § 705 of the APA—neither of which may be enforced. The upshot is that reporting companies need not comply with the CTA’s 01/01/2025 reporting deadline. It is expected that the U.S. Department of Treasury will appeal the decision. The injunction applies nationwide, meaning that all companies subject to the CTA’s reporting requirements are now exempt from filing beneficial ownership reports until further notice.
Broader Implications of the Injunction
The district court’s injunction against the CTA represents a significant legal development affecting all reporting companies nationwide. While the ruling temporarily halts compliance obligations, the final outcome of this case remains uncertain. The court challenges against the law highlight concerns about overreach and potential violations of constitutional protections, such as due process and privacy rights.
It is possible that the case could ultimately reach the Supreme Court. Additionally, with the incoming Trump administration taking office in 2025, there may be a shift in how the law is enforced—or whether it is enforced at all.
What Should Businesses Do Now?
If your business is subject to the requirements of the CTA and the injunction is lifted, the business is required to file a BOIR. A “Beneficial Owner” is an individual that owns more than 25% of the business’s equity interest or an individual that exercises substantial control over the business entity (i.e., a senior officer or executive). The BOIR requires that each business submits the name, date of birth, address, identifying number from an identification document (i.e., non-expired driver’s license, non-expired passport, non-expired state ID), and a picture of the identification document used for each Beneficial Owner of the business. In addition, the business itself must submit certain information including name, trade names, and principal business address. If the business entity was formed after 01/01/2024, the names of the individual(s) forming the business entity must also be disclosed.
For the time being, companies do not need to comply with the BOIR requirements. However, it is critical for businesses to stay informed about developments in this case, as the injunction is temporary and could be overturned on appeal. Businesses that would have been subject to the CTA should remain prepared for potential future compliance obligations if enforcement resumes.
