Update
On December 23, 2024 a motions panel of the United States Court of Appeals for the Fifth Circuit stayed the District Court’s injunction, which effectively reinstated the beneficial ownership reporting requirement under the CTA. The same day, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) extended the applicable filing deadlines. On December 26, 2024, the Fifth Circuit vacated the motion panel’s order staying the injunction pending its consideration of the constitutionality of the CTA. In issuing its order, the Fifth Circuit noted its desire to maintain the “constitutional status quo” while the proceedings advance. With the pending review by the Fifth Circuit Court of Appeals, additional developments are ahead. Please refer to our latest alert for more information.
The Bottom Line
- A federal judge in Texas issued a nationwide preliminary injunction on the enforcement of the CTA.
- Reporting companies facing upcoming beneficial ownership reporting deadlines under the CTA are not required to submit their reports pending further developments in the litigation.
- Clients that are reporting companies are encouraged to complete their respective CTA analysis and beneficial ownership information collection in the event the injunction is narrowed or lifted.
- If you have already submitted an initial beneficial ownership report with FinCEN, no further action needs to be taken at this time.
On December 3, 2024, Judge Amos Mazzant of the United States District Court for the Eastern District of Texas issued an opinion finding that the Corporate Transparency Act and its implementing regulations (collectively, the “CTA”) is “likely unconstitutional”. Most notably, Judge Mazzant issued a nationwide preliminary injunction instructing that “reporting companies need not comply with the CTA . . . pending further order of the Court.”
While the court’s decision is not a final determination as to the constitutionality of the CTA (and that the defendants could appeal the decision to the U.S. Court of Appeals for the Fifth Circuit), the injunction eliminates at this time the necessity for reporting companies to file beneficial ownership reports.
Impact on Reporting Companies’ CTA Reporting Obligations
Ahead of the December 31, 2024 deadline for reporting companies that were formed prior to January 1, 2024, many companies have already incurred significant time and resources undertaking CTA analysis and compiling beneficial ownership data and information necessary to file beneficial ownership reports. For these companies, we recommend that you proceed to complete your analysis and data collection given the uncertainty of the outcome of this litigation and the timing of appeals or further rulings on the matter.
If Judge Mazzant’s injunction is narrowed or lifted, reporting companies may be required to file their beneficial ownership reports on new filing deadlines that may be established by court order or by the Treasury’s Financial Crimes Enforcement Network (FinCEN).
If you have already submitted an initial beneficial ownership report with FinCEN, no further action needs to be taken at this time.
Understanding the Future: What Lies Ahead?
It is anticipated that FinCEN will also provide a statement in the upcoming days with its perspective on the ruling and confirm its expectations regarding the upcoming year-end beneficial ownership reporting deadline that many reporting companies were working towards. We will continue to keep you updated of developments with respect to this litigation and its impact on the CTA.