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The past few weeks have seen a flurry of activity related to the implementation of the Corporate Transparency Act (CTA) and its Beneficial Ownership Information Reporting (BOIR) requirements, the net result of which is a pause on the reporting requirements for Reporting Companies, though litigation remains ongoing. A motion before the Supreme Court of the United States could have an imminent impact on these requirements.
CTA Background
The CTA requires many small businesses to file a BOIR with FinCEN. Designed as a tool to combat financial crimes such as money laundering and tax evasion and passed under the first Trump administration with bipartisan support with a veto override, the CTA requires all “reporting companies” to disclose key information about their beneficial owners and controlling managers, including names, dates of birth, addresses, and a unique identifying number from an acceptable form of government issued identification.
Failure to comply with these reporting obligations prior to any deadline imposed by FinCEN will result in significant penalties. Non-compliance carries civil fines of $591 per day of non-filing for each person at a company who should have ensured an accurate report was filed, and criminal penalties of up to $10,000 and/or imprisonment for up to two years.
Litigation Background and Recent Developments
On December 3, 2024 a ruling out of the Eastern District of Texas in the case Texas Top Cop Shop v. Garland yielded a preliminary injunction, enjoining enforcement of the CTA, the BOIR requirements, and the then-current January 1, 2025 deadline for compliance.
On December 23, 2024, a panel of the Fifth Circuit Court of Appeals issued a ruling lifting the previously imposed injunction and reinstated the reporting requirements previously in place for most businesses. In conjunction with this, the agency tasked with enforcement of these reporting requirements, the Financial Crimes Enforcement Network (FinCEN), extended the deadline for businesses to comply with the reporting requirements to January 13, 2025.
This was followed by a further ruling from a separate panel of the Fifth Circuit reversing the December 23 decision, reinstating the nationwide injunction, which remains in effect as of this writing. As a result, FinCEN updated its guidance, stating that Reporting Companies may voluntarily submit BOIR filings, but are not required to do so while the injunction remains in effect.
On December 31, 2024, the Department of Justice (DOJ), on behalf of the U.S. Treasury and FinCEN, filed an emergency Application for a Stay of Injunction with the Supreme Court of the United States. On January 3, 2025, Justice Samuel Alito ordered a response from the plaintiffs to the emergency Application by January 10, 2025. That response has since been filed, as has an answer from the DOJ on January 13, 2025.
In its Application, the DOJ asked the Supreme Court to either narrow the injunction in scope to the parties of the case rather than a nationwide application, or to stay the injunction pending the completion of litigation in Texas Top Cop Shop.
What This Means for CTA Compliance
Until the Supreme Court issues a decision on the DOJ’s Application, the nationwide preliminary injunction remains in effect until Fifth Circuit rules on the merits of the constitutional question presented in Texas Top Cop Shop, meaning no change in enforcement until after March 25, 2025, when oral arguments are currently scheduled in the case.
Because of the pendency of a ruling from the Supreme Court, we are advising our clients impacted by the CTA to prepare the information needed for the BOIR filing requirements so they are prepared to file if the injunction is listed. In the past, FinCEN has extended the window to allow Reporting Companies an extension to file after an injunction was in place, but there is no guarantee they will afford the same opportunities in the future. Further clouding the future, bills were introduced yesterday in both the House of Representatives and the Senate to repeal the CTA. Gault Davison will continue to monitor developments related to enforcement of the CTA and will provide further guidance as litigation and legislation progresses.
We remain here to help you determine whether your business is subject to these requirements, and to assist with preparing and filing the report accurately and timely.
If you have any questions about the BOIR or would like our assistance, please contact our office at your earliest convenience to schedule a consultation. We value our relationship with you and remain committed to helping your business navigate these new regulations.
