Client Alert: Corporate Transparency Act: Nationwide Injunction Restored; Filing Deadlines Paused
Update – Fifth Circuit Reinstates Nationwide Injunction, Pausing CTA Compliance Requirements
Date: December 30, 2024
On December 26, 2024, the United States Court of Appeals for the Fifth Circuit in Texas Top Cop Shop, Inc. v. Merrick Garland (Civil Action No. 4:24-CV-00478 (E.D. Tex)) reinstated a nationwide injunction as to compliance with and enforceability of the CTA and its underlying Beneficial Ownership Information (BOI) Reporting Requirements final rule (31 C.F.R. 1010.380) (found here). This latest decision reverses a prior order issued by a motions panel of the same court on December 23, 2024, which temporarily lifted the injunction and reinstated the CTA compliance requirement (as detailed in our prior client alert found here). In its order, the Court vacated its prior December 23 motions panel’s order staying the district court’s preliminary injunction. Further, the Court’s ruling emphasized the importance of preserving the “constitutional status quo” while the court’s merits panel reviews the case, which will commence in February 2025 and will run through March 2025, when oral arguments are expected to be heard. On December 27, 2024, the Financial Crimes Enforcement Network (FinCEN), the agency responsible for enforcing the Corporate Transparency Act (CTA), issued guidance (found here) clarifying that reporting companies are now not obligated to file BOI reports and will not face liability for noncompliance while the preliminary injunction remains in effect.
Conclusion
Similar to the guidance following the nationwide injunction ordered on December 3, 2024, FinCEN emphasized that reporting companies may voluntarily submit BOI reports, and, notably, FinCEN still does not address whether reporting companies who choose not to voluntarily file could be subject to retroactive enforcement or penalties if the stay is lifted. The US government’s appeal could result in the overturning of the nationwide injunction, restoring compliance obligations under the CTA. Thus, voluntary filing can help reduce the risk of encountering tight deadlines, and missing compliance requirements, and minimize exposure to potential civil or criminal penalties if CTA reporting requirements are reinstated.
The litigation surrounding the Texas Top Cop Shop Inc. has created uncertainty for all companies subject to the CTA reporting requirements that do not meet one of the 23 exemptions under the CTA. The current nationwide injunction provides a temporary reprieve from compliance with the reporting requirements with a slight taint of uncertainty until a final decision is reached in the courts on the CTA’s constitutionality and enforceability. Additional legal developments, including the awaited decision in National Small Business United v. Yellen and potential appeals to the U.S. Supreme Court, could further shape the CTA’s enforcement. With a new administration and possible legislative changes on the horizon, the long-term future of the CTA remains unclear.
We will continue to monitor this case closely and provide updates on any significant developments.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.