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UPDATE - The Corporate Transparency Act

UPDATE – The Corporate Transparency Act

The 5th Circuit Court of Appeals has halted enforcement of the Corporate Transparency Act (“CTA”), meaning that reporting companies are not subject to the reporting deadlines previously established. This turn of events took place just three days after another panel within the same appeals court had revived the reporting requirements, but extended the December 31st deadline to January 13, 2025.

History of the CTA:

  1. In 2021, Congress passed the CTA and set a January 1, 2025 deadline for businesses to file initial reports.
  2. On December 3, 2024, the US District Court for the Eastern District of Texas issued a nationwide preliminary injunction which suspended the enforcement of the CTA. This injunction relieved reporting companies of the obligation to file Beneficial Ownership Information reports (“BOI reports") just a few weeks before the January 1, 2025, compliance date. The deadline for compliance was also stayed.
  3. On December 23, 2024, A motions panel of the 5th Circuit overturned the injunction, reviving the CTA, and the government responded by postponing the BOI reporting deadline to January 13, 2025.
  4. On December 26, 2024, another 5th Circuit panel reinstated the nationwide injunction, citing the need to preserve the status quo while it reviews the substantive arguments submitted by the parties within the appeal.

So, is the CTA no longer enforceable?

The 5th Circuit Appeals Court has not made a final ruling on the constitutionality of the CTA. But the District Court said the CTA is likely unconstitutional. The 5th Circuit will hear the parties’ appellate arguments on March 25, 2025.

What does this mean going forward?

Reporting Companies have no immediate filing obligations to submit BOI reports, or update BOI reports previously submitted. Although not required, the U.S. Financial Crimes Enforcement Network (FinCEN) reporting website continues to allow businesses to voluntarily submit BOI reports if they choose.

Due to the turbulent nature of the CTA recent developments, reporting companies should monitor developments closely and prepare to comply if the injunction is lifted.

In the event the injunction is lifted, or if the Texas District Court’s decision is reversed or vacated, it is unknown how quickly BOI reports will need to be filed if the CTA compliance obligations are reinstated. Reporting Companies should monitor the status of the Texas case, and continue gathering necessary information for BOI reports (including updates to information in previously filed BOI reports) to ensure future compliance, if required.

 

For additional information on CTA reporting requirements, see our previously published article “The Corporate Transparency Act” from January 19, 2024.

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