What Happened:
On December 26, 2024, a merits panel of the U.S. Court of Appeals for the Fifth Circuit reinstated a nationwide preliminary injunction against the enforcement of the Corporate Transparency Act (CTA) by the Financial Crimes Enforcement Network (FinCEN). As a result, FinCEN issued an alert the following day, clarifying that reporting companies are not currently required to file beneficial ownership information (BOI) and will not face penalties for failing to file while the preliminary injunction remains in place. However, companies may still voluntarily submit BOI reports if they choose.
This decision overturns a prior stay granted by the Fifth Circuit on December 23, 2024, which temporarily allowed the enforcement of the CTA’s reporting requirements. Now, companies are once again relieved of their mandatory obligations under the CTA — at least for the time being.
Looking Back:
The Fifth Circuit’s decision stems from Texas Top Cop Shop, Inc. v. Garland, where plaintiffs challenged the constitutionality of the CTA and sought to enjoin the government from enforcing its January 1, 2025, compliance deadline. After the U.S. District Court for the Eastern District of Texas granted the injunction on December 3, 2024, the U.S. government appealed, leading to a temporary stay of the injunction on December 23, 2024. However, just three days later, the Fifth Circuit’s merits panel vacated that stay, reinstating the injunction.
Prior to the reinstatement, FinCEN had extended reporting deadlines, requiring:
- Entities created before 2024: Initial filings by January 13, 2025.
- Entities with deadlines between December 3, 2024, and December 23, 2024: Initial filings by January 13, 2025.
- Entities created between December 3, 2024, and December 23, 2024: Initial filings within 111 days of their creation date.
What Does This Mean for Businesses?
For now, the preliminary injunction remains in place while the Fifth Circuit considers the substantive arguments. Briefing on the case is scheduled to conclude by February 28, 2025, with oral arguments set for March 25, 2025. However, the uncertainty continues as the Department of Justice has asked the Supreme Court to intervene and lift the injunction pending the Fifth Circuit’s decision.
If the Supreme Court grants this request, the CTA’s reporting requirements could return suddenly, leaving businesses to navigate potential compliance challenges.
What Should Businesses Do?
While the reporting requirements are currently on hold, businesses should:
- Monitor Updates: Stay informed on developments related to the CTA and any decisions from the courts. FinCEN’s website is a key resource for updates and guidance.
- Evaluate Compliance: Assess your company’s obligations under the CTA to ensure readiness if the injunction is lifted.
- Consult Legal Counsel: Seek advice to navigate the evolving legal landscape and ensure compliance when needed.
RAK Law is here to help you interpret these developments and protect your business. Reach out to us if you have questions or need assistance understanding how the CTA might impact your reporting obligations.
Looking Forward:
The next milestone in this legal battle is the Supreme Court’s decision on the Department of Justice’s request, which could come as early as January. Until then, businesses should remain proactive in understanding their responsibilities while awaiting further clarity. As always, RAK Law is committed to keeping our clients informed and prepared.