Navigating the Corporate Transparency Act Amid Ongoing Litigation: What Businesses Need to Know
On December 26, 2024, the merits panel of the 5th Circuit of the US Court of Appeals issued an order vacating the earlier panel's order 12/23/24 that stayed the nationwide preliminary injunction enjoining enforcement of the Corporate Transparency Act (CTA). What does this actually mean in non-legal terms? For the moment, the deadline for filing BOI reports under the CTA is back on hold.
The district case Texas Top Cop Shop, Inc. v. Garland, resulted in a nationwide preliminary injunction against enforcing the CTA's reporting requirements starting December 3, 2024. The 5th Circuit stayed the injunction December 23, 2024, putting the deadline back in place and FINCEN issued a statement that the deadline was extended to January 13, 2025. Then just 3 days later the merits panel of the 5th Circuit removed the stay and put the enforceability of the CTA and the required BOI reports back on hold.
Due to ongoing litigation, businesses are not currently required to submit beneficial ownership information, and no penalties will be imposed for non-compliance while this situation remains in effect. However, companies may still choose to submit beneficial ownership reports voluntarily.
Below, we break down what this means for your business and how to navigate the current legal landscape.
Background: The Corporate Transparency Act (CTA)
The CTA aims to combat illicit financial activities such as money laundering, drug trafficking, and terrorism financing. It requires certain entities, particularly small businesses, to disclose beneficial ownership information to FinCEN. By increasing transparency, the CTA seeks to create a fairer economic environment and close loopholes exploited by bad actors.
Since its passage, the CTA has faced legal challenges, with opponents questioning its constitutionality. While some district courts have upheld the CTA, the U.S. District Court for the Eastern District of Texas granted a preliminary injunction, pausing its enforcement temporarily.
Key Legal Developments
Nationwide Preliminary Injunction (December 3, 2024):
The Texas court granted an injunction preventing FinCEN from requiring beneficial ownership reports.Government Response and Appeal (December 5, 2024):
The Department of Justice filed an appeal and sought a stay of the injunction, arguing that the CTA aligns with constitutional principles upheld by other courts.Stay Granted and Then Vacated (December 23-26, 2024):
The Fifth Circuit initially stayed the injunction, reinstating the CTA’s reporting requirements temporarily. However, another panel vacated the stay on December 26, reinstating the injunction and halting mandatory reporting.
Current Status
As of December 27, 2024, the injunction remains in effect. Reporting companies are not legally obligated to file beneficial ownership information with FinCEN. However, businesses can voluntarily submit reports if they choose to do so.
What Should Your Business Do?
Stay Informed: Monitor updates from FinCEN and legal developments to understand when reporting requirements might resume.
Evaluate Voluntary Reporting: While not mandatory, submitting beneficial ownership information could demonstrate compliance readiness and avoid potential backlog issues if deadlines are reinstated.
Consult Visibility: The legal landscape surrounding the CTA is complex and evolving. Let us know if you have any questions regarding your business and if it complies with current requirements and prepares for potential future obligations.
Looking Ahead
The government remains confident in the CTA's constitutionality and is actively pursuing its appeal. Depending on the outcome, businesses may need to act quickly to comply with reinstated deadlines.
How can we help?
At Visibility we are committed to helping businesses navigate these uncertain times. Contact us to stay ahead of changes, evaluate compliance strategies, and prepare for future requirements.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult with a professional for guidance tailored to your specific situation.
