Is the Corporate Transparency Act Going To Be Brought Back to Life?

By Kenneth Ashton, Adam J. Greenup, Sarah Hibbard, Brett W. Johnson, Tracy A. Olson, Garth D. Stevens, and John G. Weston

On December 5, 2024, the Department of Justice (DOJ), filed a Notice of Appeal in response to a U.S. District Court’s recently issued, nationwide preliminary injunction stopping the reporting obligations under the Corporate Transparency Act (CTA). The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) also posted a statement on its website regarding the court’s ruling and the appeal. In the statement, FinCEN confirmed that it will comply with the order issued by the court until final resolution by the appellate courts, which likely will mean an appeal all the way to the U.S. Supreme Court. FinCEN further confirmed that reporting entities are not currently required to file their beneficial ownership information (BOI) reports with FinCEN, and will not face civil and criminal penalties if they do not file their BOI reports while the preliminary injunction remains in effect, but that reporting entities may still file BOI reports voluntarily.

Preliminary Injunction and Underlying Case

On December 3, 2024, the District Court of Eastern Texas granted a nationwide preliminary injunction (i) enjoining the CTA, (ii) enjoining enforcement of the Reporting Rule by the FinCEN, and (iii) staying the January 1, 2025, compliance deadline for subject entities formed prior to January 1, 2024, to submit BOI reports. Pending further court order, reporting entities need not comply with the CTA’s original January 1, 2025, reporting deadline or other requirements.

As previously reported (prior alert), the preliminary injunction was issued in a case initially filed by a group of small businesses and one private individual claiming that Congress exceeded its constitutional authority when it passed the CTA. The court agreed, stating “[t]he fact that a company is a company does not knight Congress with some supreme power to regulate them in all aspects — especially through the CTA, which does not facially regulate commerce.” The court’s main critique of the federal mandate was its view that the CTA constituted federal government overreach and sought information that undermined one of the key features of corporate formation. Describing the CTA as a “quasi-Orwellian statute,” the court further explained, that the CTA “represents a federal attempt to monitor companies created under state law — a matter our federalist system has left almost exclusively to the several States.” The court found that “the CTA ends a feature of corporate formation as designed by the various States – anonymity.”

Next Steps and Timeline

Impacted entities or other interested non-governmental organizations may consider weighing in and filing an amicus curiae brief in this matter to inform the Fifth Circuit how its forthcoming opinion might impact business operations or other constitutional rights. While an order from the Fifth Circuit and actual filing dates could impact the anticipated timeline, amicus briefs supporting DOJ are expected to be due as early as February and amicus briefs supporting the small business plaintiffs are expected to be due as early as March. It is unclear whether the Trump administration will continue the appeal. There are also opportunities for congressional outreach regarding congressional action on the CTA. Furthermore, for those entities that have already submitted BOI reports, it is important to understand how the government may utilize the information in such reports in enforcing other laws. Companies, trade organizations, and other interested parties should take the opportunity to review the impact of the CTA on their operations and determine whether to vocalize any concerns via the courts or through the legislative process.

What Does this Mean for CTA Compliance?

Given the possibility of either the Fifth Circuit or the Supreme Court staying the district court’s order pending appeal, reporting entities’ obligations are uncertain. While the preliminary injunction is in place, reporting entities may still file voluntarily, but have no obligation to file their BOI reports. The Notice of Appeal could result in the Fifth Circuit or the Supreme Court staying the district court’s order pending appeal. A stay of the district court’s order could result in reporting entities being required to file their BOI report on short notice by the January 1, 2025, deadline. Alternatively, FinCEN could adjust the January 1, 2025, deadline to give reporting entities additional time to comply with their BOI reporting obligations.

At this point, it is up to each reporting entity to decide whether to comply with the CTA’s BOI reporting requirement by the January 1, 2025 filing deadline (or other applicable filing deadlines for reporting entities formed in 2024 or thereafter), or wait out the court process before filing a BOI report. Due to the uncertainty, reporting entities may want to consider continuing to gather the information necessary to comply, and be prepared to file their BOI reports if the preliminary injunction is lifted and only a small grace period is provided for reporting.