By: Tom Scriven and Zahra Charles
New York, New York – The Corporate Transparency Act (the “CTA”), which went into effect on January 1, 2024, imposes disclosure and reporting obligations on certain companies that are formed or registered to do business in the US. Since its adoption, the CTA has faced numerous constitutional challenges.
As we announced in a client alert published last week, on December 23, 2024, the U.S. Court of Appeals of the Fifth Circuit lifted the December 3rd injunction that had barred the federal government from enforcing the CTA nationwide.
However, in a somewhat surprising and quick turn, three days later on December 26, 2024, and following a request for a rehearing, a different panel of the Fifth Circuit vacated the Court’s December 23rd order which immediately reinstated the preliminary injunction.
Accordingly, reporting companies that do not otherwise qualify for an exemption, are not currently required to file beneficial owner information reports (“BOI Reports”) with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), and will not be subject to penalties for failure to meet deadlines imposed by FinCEN, while the injunction remains in effect.
Background of 5th Circuit Texas case:
The case at issue is Texas Top Cop Shop, Inc., et al. v. Garland, Attorney General of the United States, et al., wherein six plaintiffs, including the National Federation of Independent Business, which counts 300,000 companies as members, and several other small businesses, filed a lawsuit on May 28, 2024, arguing that Congress overstepped its constitutional authority in passing the CTA.
- On December 3rd, the Texas Court determined that the Texas Top Cop Shopplaintiffs were likely to succeed in their claims and issued a nationwide injunction, halting enforcement of the CTA.
- On December 23, 2024, the Court of Appeals for the Fifth Circuit, lifted the injunction, stating that the U.S. Department of Justice “made a strong showing that it is likely to succeed on the merits in defending the CTA’s constitutionality” under the U.S. Constitution’s Commerce Clause, which allows Congress to regulate economic activity. As a result, FinCEN extended the deadlines for non-exempt reporting companies to comply with reporting requirements and made the filing of BOI reports mandatory.
- On December 26, 2024, as noted above, a separate panel of the Court of Appeals for the Fifth Circuit, vacated the Court’s earlier order, and reinstated the nationwide injunction.
We understand that recent developments in cases challenging the CTA’s constitutionality create uncertainty for those who may be obligated to comply with the CTA’s BOI mandatory reporting requirements, if they are reinstated. We recommend that Reporting Companies and persons impacted by the CTA continue to monitor developments regarding the status of the CTA’s reporting requirements and be prepared to comply if the injunction is lifted and these requirements become mandatory once again.
RPCK is continuing to monitor developments regarding the CTA. As always, RPCK lawyers are available to assist with any questions that you may have.