On December 26, 2024, a panel of the US Court of Appeals for the Fifth Circuit reinstated a nationwide injunction blocking enforcement of the Corporate Transparency Act (CTA), just days after a different panel had lifted it. This back-and-forth decision has caused significant turmoil within business compliance offices across the country.
What is it?
The CTA, enacted as part of anti-money laundering measures, requires US business entities to disclose the identities of their beneficial owners. The date for the disclosure of business formed before 2024 was set as January 1, 2025. Steep financial penalties were in place for those that failed to make the disclosure. The disclosures were to be made to the Treasury’s Financial Crimes Enforcement Network (FinCEN), and businesses could complete an online process to submit the information. However, with the injunction now back in place, that puts a halt to the reporting requirement for now.
The legal challenge
The legal challenge, brought by Texas Top Cop Shop Inc., a firearm retailer represented by the Center for Individual Rights, centers on the constitutionality of the CTA. On December 3, 2024, the US District Court for the Eastern District of Texas issued a nationwide halt to enforcement of the law. However, a Fifth Circuit panel lifted that injunction on December 23, 2024, suggesting the government was likely to prevail in defending the law. The latest Fifth Circuit order, issued by a different panel on December 26, vacates that stay– once again halting enforcement.
Rampant confusion
The frequent changes to CTA enforcement in recent weeks, have caused significant confusion. Before this recent decision, FinCEN extended the reporting deadline to January 13, 2025. Marking several changes to the reporting requirement in little over a week. This has created widespread uncertainty among those businesses within the reporting requirement’s scope. Despite the injunction many businesses are considering voluntarily making the disclosure.
A statement from FinCEN clarified:
“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. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
Implications for businesses
Before the injunction, it was estimated that approximately 32.6 million existing US businesses would need to file beneficial ownership reports by the turn of the new year. With the injunction in place, they are not required to do so while the case is being considered.
The Fifth Circuit panel, in its December 26 decision, stated that it was “preserving the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.” As the legal challenge continues, businesses are left with the choice of whether to voluntarily file their beneficial ownership reports or wait to see what happens next.
Initial reports, updates, corrections, and other CTA filings are currently enjoined, no matter the year the business was formed.
What’s next?
The CTA challenge concerns constitutional issues that may not be resolved quickly. The Fifth Circuit has scheduled oral arguments for March 25, 2025, to address the merits of the case. A lot could change between now and then, especially with a transition to a new Presidential Administration. Stay tuned for more information on this developing legal news that has real implications for millions of US businesses.
