The Corporate Transparency Act (31 U.S.C. § 5336, the CTA), which went into effect on January 1, 2024,[1] requires a broad range of corporations, limited liability companies, and other entities (“reporting companies”) to file Beneficial Ownership Information Reports (BOIRs) with the Financial Crimes Enforcement Network of the US Department of the Treasury (FinCEN). On December 3, 2024, the US District Court for the Eastern District of Texas issued a nationwide preliminary injunction that suspends the enforcement of the CTA and its BOIR requirements, including the BOIR compliance deadlines.[2]
A group of six plaintiffs originally filed this suit in May 2024. The plaintiffs argued that, despite furthering FinCEN’s mission of detecting and prosecuting financial crimes, the CTA violates three fundamental rights under the Constitution: (1) their right to be free from laws that Congress does not have authority to enact, (2) their rights under the First Amendment, and (3) their rights under the Fourth Amendment. The District Court preliminarily enjoined the enforcement of the CTA and its BOIR requirement, as they are “likely unconstitutional” and “outside of Congress’s power.”[3] In order to provide “meaningful relief” to the plaintiffs, the District Court ordered that this injunction be imposed nationwide.
As expected, FinCEN (via the Department of Justice) filed a Notice of Appeal to the US Court of Appeals for the Fifth Circuit. However, FinCEN has made clear that it will comply with the injunction for as long as it remains in effect. Accordingly, until the Fifth Circuit decides to uphold, vacate, or perhaps limit the scope of the injunction, reporting companies are not required to submit their BOIR and supporting information to FinCEN. While a reporting company may voluntarily submit such information if it so chooses, reporting companies that opt out during the pendency of the appeal will not be subject to the civil and criminal penalties that might have otherwise been imposed by the CTA.
While some reporting companies are still proceeding with the filing of their BOIRs, others are taking a more conservative approach and waiting until there is a definitive outcome from the Fifth Circuit before submitting their BOIRs. In any event, given the rapidly evolving landscape concerning the CTA, the BOIR requirements, and the deadlines related thereto, it is prudent for organizations to continue assessing whether they, their affiliates, and/or their subsidiaries constitute reporting companies that are obligated to submit BOIRs or whether an exception might apply.
[1] You can find our prior Client Alerts concerning the CTA’s implementation here and here.
[2] Texas Top Cop Shop, Inc., et al. v. Garland et al., No. 4:24-CV-478, 2024 WL 5049220 (E.D. Tex. Dec. 3, 2024). Absent this injunction, (a) a reporting company created or registered before January 1, 2024, would be obligated to file its BOIR by January 1, 2025; (b) a reporting company created or registered on or after January 1, 2024, and before January 1, 2025, would be obligated to file its BOIR within 90 days of formation; and (c) a reporting company created or registered on or after January 1, 2025, would be obligated to file its BOIR within 30 days of formation.
[3] Id. at *37.
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