Client Alert: U.S. entities are not required meet their CTA Filing Requirements while injunction is in effect.
In a recent development regarding enforcement of the Corporate Transparency Act (CTA) and Beneficial Ownership Information Report (BOIR), U.S. entities are once again NOT required to file their BOIRs—at least for now.
Background
As we reported in an earlier Client Alert, on December 3, 2024, a judge of the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the CTA and ruled that the law was likely unconstitutional based on concerns over states’ rights under the Tenth Amendment and the Commerce Clause. On December 23, 2024, in response to the government’s request for an emergency stay of the injunction—which essentially paused the enforcement of an injunction while the appeal is being decided—the United States Court of Appeals for the Fifth Circuit lifted the nationwide injunction, citing Congress’s broad power to regulate interstate commerce under the Commerce Clause and the government’s justification of public interest “in combatting financial crime and protecting our country’s national security.” Three days later, on December 26, a Fifth Circuit panel issued a new order vacating that portion of the motions panel order granting the government’s motion to stay the preliminary injunction. As such, the nationwide injunction delaying the enforcement of the CTA is back in effect.
What’s next?
The court also issued an order requiring merits briefing to be completed by February 28, 2025, and scheduling oral argument for March 25, 2025. As of now, companies are not required file BOIRs while the injunction is in effect. However, note that a preliminary injunction is not a final disposition of the case. To date, neither the U.S. District Court for the Eastern District of Texas nor the Fifth Circuit has expressed a definitive judgment on the constitutionality of the CTA. There are several other courts currently hearing cases challenging the CTA. In addition, FinCEN or Congress may make other changes to the reporting requirements in response to the ongoing legal challenges.
Basswood Counsel will continue to closely monitor any developments regarding this matter. Until the final disposition of the case, companies have a few options on how to proceed.
- File the BOI reports regardless of the injunction to avoid future penalties should the law be reinstated (our recommended approach).
- Have the BOI reports ready but hold on submitting until further guidance is issued.
- Hold on preparing the BOI reports under the assumption that the injunction will hold.
Please consider these options and inform us of your decision as soon as possible. There are no filing fees or tax implications with filing the BOIR, and the BOIRs for many businesses with straightforward ownership and control can be completed relatively quickly. We recommend that clients do their best to meet the new filing deadlines to avoid penalties, which may include civil penalties of up to $500 per day or criminal penalties including imprisonment for up to two years, for willful failure to file or providing false or fraudulent information.