The Corporate Transparency Act (CTA), which Congress enacted in January 2021, went into effect on January 1, 2024. The CTA mandates that most U.S. corporations, limited liability companies, and similar entities disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a part of the U.S. Treasury Department. This initiative aims to combat activities such as money laundering, terrorist financing, and tax evasion by enhancing corporate transparency. As an aside, the wild optimism of a law requiring criminals to present law enforcement with a road map of their tiered entity structures is beyond the scope of this humble blog post.
Originally, the CTA required companies formed prior to 2024 who were subject to the reporting requirement to submit beneficial ownership information (BOI) by January 1, 2025. However, on December 3, 2024, in Texas Top Cop Shop, Inc. v. Garland, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction temporarily blocking enforcement of the CTA's reporting requirements. While anecdotal evidence suggests that compliance rates were very low prior to the injunction’s issuance, the District Court’s ruling created uncertainty for businesses regarding compliance with the reporting obligations.
On December 11, the Department of Justice (DOJ), on behalf of the U.S. Treasury Department, filed “Defendant’s Motion to Stay Injunction Pending Appeal” with the District Court. On December 13, the DOJ filed its “Emergency Motion for Stay Pending Appeal” with the Fifth Circuit Court of Appeals and asked the court to reinstate the CTA's reporting requirements. Treasury attorneys asked the Fifth Circuit to rule “as soon as possible but in no event later than December 27, 2024, to ensure that regulated entities can be made aware of their obligation to comply before January 1, 2025.”
After much overly dramatic back-and-forth (giving the business law community collective whiplash over the holidays)—including the Fifth Circuit’s quick reversal of its own motions panel—the injunction stands … at least until the end of March. The first brief on the merits is due on February 7, 2025, and oral argument is set for March 25, 2025. It is possible that either party could file an emergency appeal of an adverse ruling out of the Fifth Circuit to the U.S. Supreme Court.
Requirements under the CTA are evolving quickly. The latest alert on FinCEN’s BOI page states that, “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force.” Nevertheless, a ruling from either the Fifth Circuit or the Supreme Court may revoke the nationwide injunction and reinstate the obligation to file with an immediate deadline. Therefore, we are recommending that companies who are subject to the reporting requirements (and have not already complied) to get their BOI reports ready and either file or be ready to file as soon as the Fifth Circuit (or Supreme Court) rules on the injunction.
Valerie Sasaki is a partner at Samuels Yoelin Kantor LLP, where her practice focuses on tax, business, and estate planning. Ms. Sasaki chairs the firm’s Taxation Practice.
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