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Corporate Transparency Act Is (Once Again) Enjoined; Reporting Companies Not Required to File Beneficial Ownership Reports
People
- Anderson, Jarryd E.
- Carey, Jessica S.
- Finzi, Roberto
- Gonzalez, Roberto J.
- Halperin, Alan S.
- Ippolito, Loretta A.
- Jordan, Matthew B.
- Kaoutzanis, Christodoulos
- Schlaphoff, Aaron J.
- Slevin, Maury
- Stern-Kaplan, Renee
- Vogel, Michael
- Welt, Samuel J.
- Hirschfeld, Arik
- Kleiner, Samuel
- Simonides, Lauren V.
- Smith-Sandy, Shekida A.
- Stapleton, Anna
December 30, 2024 Download PDF
As explained in greater detail below, following a December 26 ruling by the U.S. Court of Appeals for the Fifth Circuit, a nationwide preliminary injunction is (once again) in effect against enforcement of the Corporate Transparency Act (the “CTA”) and FinCEN’s beneficial ownership information reporting rule (the “BOI Reporting Rule”). As a result, reporting companies are not required to file Beneficial Ownership Information (“BOI”) reports with FinCEN. FinCEN stated in a December 27 announcement that “as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.”[i]
Background
As explained in greater detail in prior Client Alerts,[ii] the CTA and the BOI Reporting Rule required “reporting companies” to file BOI reports with FinCEN by specified deadlines.[iii] The BOI Reporting Rule included twenty-three categories of exempt entities.[iv]
The BOI Reporting Rule took effect on January 1, 2024 and there had been a significant upcoming deadline on January 1, 2025, which was the date when all (non-exempt) reporting companies formed before January 1, 2024 were required to file their BOI reports with FinCEN.
Key Developments and Rulings
On December 3, 2024, in the case of Texas Top Cop Shop v. Garland, Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction barring enforcement of the CTA and FinCEN’s BOI Reporting Rule.[v] The court held that plaintiffs had a substantial likelihood of success in their challenge to the constitutionality of the CTA under the Commerce Clause and, as such, granted a preliminary injunction. The court held that in order to afford “complete relief” to the plaintiffs, a nationwide preliminary injunction was necessary and, as such, reporting companies do not need to file BOI Reports “pending further order of the Court.”[vi] In response, FinCEN issued guidance stating that (non-exempt) reporting companies would not be required to file BOI reports “while the order remains in force.”[vii] The U.S. Department of Justice submitted notice of an appeal of the ruling to the Fifth Circuit[viii] and subsequently filed a motion with the district court to stay the national injunction pending appeal.
The Department of Justice also asked the Fifth Circuit to stay the district court’s injunction pending consideration of its appeal. On December 23, 2024, a three-judge motions panel granted that motion, staying the injunction and expediting the appeal to the next available motions panel.[ix] Contrary to the district court’s analysis, the panel concluded that the government was likely to prevail on the merits because the CTA’s requirements fall within Congress’s power to regulate interstate commerce. Accordingly, FinCEN’s requirements for filing BOI reports went back into effect. Thereafter, FinCEN published guidance that extended the January 1, 2025 filing deadline to January 13, 2025, and provided additional extensions for reporting companies formed between September 4 and December 23 of 2024.
On December 26, 2024, the merits panel of the Fifth Circuit to which the appeal had been assigned issued an order vacating the stay of the injunction. The order stated that the “constitutional status quo” prior to the stay should be preserved while the merits panel considers the issues.[x] This means that the district court’s injunction is in effect once again.
As of December 27, 2024, oral argument on the appeal has been calendared for March 25, 2025.[xi]
What this Latest Development Means for Reporting Companies
At this time, reporting companies are not required to file BOI reports—and may not be penalized for not filing BOI reports with FinCEN. Reporting companies may continue to voluntarily submit BOI reports.
We expect that the national injunction will remain in effect through at least the oral argument scheduled for March 25, 2025, but it is possible that the Department of Justice could seek relief from the Supreme Court.
Given the possibility that the BOI Reporting Rule could come back into effect with a short deadline to file, (non-exempt) reporting companies may decide to continue to prepare for the possibility of once again being required to submit BOI reports to FinCEN.
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[i] See U.S. Dep’t of the Treasury Financial Crimes Enforcement Network (“FinCEN”), Beneficial Ownership Information, available here.
[ii] See Paul, Weiss, New Filing Requirements Under the Corporate Transparency Act, available here; Paul, Weiss, The Corporate Transparency Act From an Estate Planning Perspective, available here; Paul, Weiss, The Corporate Transparency Act from an Estate-Planning Perspective (October 2024 Update), available here.
[iii] In January 2021, Congress enacted the CTA to combat the funding of illicit activities. The CTA was passed as Title LXIV (§§ 6401–03) of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021, Public Law 116–283 (Jan. 1, 2021).
[iv] See Beneficial Ownership Information Reporting Requirements, available here.
[v] Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478, Dkt. 30 (E.D. Tex. Dec. 3, 2024).
[vi] Id. at 76, 78.
[vii] See U.S. Dep’t of the Treasury FinCEN, Beneficial Ownership Information, available here.
[viii] Texas Top Cop Shop, Inc. et al. v. Garland et al., No. 4:24-CV-478, Dkts. 32, 34 (E.D. Tex. Dec. 6, 2024).
[ix] Texas Top Cop Shop, Inc. v. Garland, No. 24-40792, Dkt. 140-2 (5th Cir. Dec. 23, 2024).
[x] Texas Top Cop Shop, Inc. v. Garland, No. 24-40792, Dkt. 160-2 (5th Cir. Dec. 26, 2024).
[xi] Texas Top Cop Shop, Inc. v. Garland, No. 24-40792, Dkt. 163, 165 (5th Cir. Dec. 27, 2024).