As we previously discussed, on December 3, 2024, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas issued a memorandum opinion and order granting a nationwide preliminary injunction against the Corporate Transparency Act (“CTA”), blocking implementation of the CTA in its entirety.
On December 5, 2024, the Department of Justice (“DOJ”), representing the Department of the Treasury, submitted a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit, challenging the court’s opinion and order.
The Financial Crimes Enforcement Network (“FinCEN”) has also issued new guidance to reporting companies on how this injunction affects their compliance with the CTA. In relevant part, FinCEN stated:
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.
As the case develops and if the DOJ successfully seeks expedited or interim relief from the Fifth Circuit, then the preliminary injunction could be vacated, narrowed, or otherwise modified in the near term. Furthermore, although FinCEN has issued this guidance, it is not yet clear whether any changes to the preliminary injunction would extend the required filing deadlines or grant relief to companies that pause CTA filings while the preliminary injunction is in effect.
Conclusion
Although we believe that no grace period or an overly short grace period would be an unreasonable outcome, it is currently uncertain what, if any, grace period would be provided if CTA compliance obligations are reinstated. FinCEN may refrain from providing specific guidance on grace periods until the DOJ’s appeal progresses.
Despite FinCEN’s newly issued guidance, V&E still recommends that clients continue to assess the applicability of reporting requirements under the CTA and be prepared to make any required filings when due. This preparation is especially important in the event that the DOJ’s appeal is successful and the preliminary injunction is vacated, narrowed, or modified before January 1, 2025.
