On January 1, 2021, Congress enacted the Corporate Transparency Act (the “CTA”) for the purpose of protecting U.S. national security, combat money laundering, and promoting financial transparency. The CTA requires certain businesses and other entities to report information on their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), an agency in the U.S. Department of Treasury.
On January 1, 2024, mandatory compliance with these reporting obligations began, requiring more than 30 million small- and medium-sized businesses to report ownership information to FinCEN by January 1, 2025.
Despite the bill that created the CTA passing with wide bipartisan support under President Trump’s first term, some were outraged and many lawsuits have been filed now that mandatory compliance is required. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. However, two of those lawsuits resulted in judgments declaring the CTA unconstitutional and blocking its enforcement.
One court issuing a limited injunction applicable to just the plaintiffs involved in that lawsuit while the other, a federal district court in Texas, issued a preliminary injunction applicable to all reporting companies nationwide on Tuesday, December 3, 2024.
In response to that nationwide preliminary injunction, FinCEN announced it would not enforce the CTA reporting deadlines while the injunction was in effect (though voluntary compliance was permitted). The Department of Justice, on behalf of the Department of the Treasury, filed an appeal with the U.S. Court of Appeals for the Fifth Circuit and also an emergency motion to lift the nationwide injunction pending their appeal.
In the early afternoon of December 23, 2024, a three-judge panel of the Fifth Circuit lifted the Texas district court’s nationwide preliminary injunction, finding that the federal government is likely to prevail in a constitutional challenge to the CTA. However, on December 26, 2024 a different panel of the Fifth Circuit reinstituted the injunction.
That means NONE of the reporting deadlines under the CTA are in effect as of December 26, 2024.
If you elect to not voluntarily submit at this time, companies should remain prepared for potential future compliance obligations by doing the following:
- Continue monitoring ongoing litigation and updates from the courts and FinCEN;
- Maintain accurate and up-to-date beneficial ownership records in anticipation of future reporting requirements; and
- Consult legal counsel to address any concerns or questions regarding compliance.
