Understanding the Recent Legal Developments Surrounding the Corporate Transparency Act (CTA)
Updated December 30, 2024
Summary
Per the latest FinCEN Alert:
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.
The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering. The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.
On December 23, 2024, a panel of the U.S. Court of Appeals for the Fifth Circuit granted a stay of the district court’s preliminary injunction entered in the case of Texas Top Cop Shop, Inc. v. Garland, pending the outcome of the Department of the Treasury’s ongoing appeal of the district court’s order. FinCEN immediately issued an alert notifying the public of this ruling, and recognizing that reporting companies may have needed additional time to comply with beneficial ownership reporting requirements, FinCEN extended reporting deadlines. On December 26, 2024, however, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s December 23, 2024 order granting a stay of the preliminary injunction. Accordingly, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.
December 9, 2025
The Corporate Transparency Act (CTA), enacted as part of the National Defense Authorization Act for Fiscal Year 2021, introduces new reporting requirements for certain entities, including family offices with complex enterprise structures. The Act aims to combat money laundering, tax evasion, and other illicit financial activities by requiring the disclosure of beneficial ownership information.
However, recent legal developments have temporarily altered these requirements.
Let's Dive Deeper
Recent Legal Developments
On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction, halting the enforcement of the CTA. The court expressed concerns over the law's constitutionality and its potential infringement on states' rights. This decision arrived just weeks before the January 1, 2025, deadline for existing entities to submit their beneficial ownership information. Reuters
In response, on December 5, 2024, the Department of Justice, on behalf of the Treasury Department, has appealed the ruling, seeking to reinstate the CTA's enforcement. While the appeal is pending, FinCEN has announced that reporting companies are not currently required to file beneficial ownership information and will not face penalties for non-compliance during this period. Nonetheless, FinCEN is accepting voluntary submissions. Financial Crimes Enforcement Network (FinCEN)
Implications for Businesses
The injunction introduces uncertainty for businesses regarding compliance with the CTA. Entities that were preparing to meet the January 1, 2025, reporting deadline now face ambiguity about their obligations. Given the ongoing legal proceedings, it's crucial for businesses to stay informed about the status of the CTA and be ready to comply promptly if the injunction is lifted.
Recommended Actions
- Stay Informed: Regularly monitor updates from FinCEN and the Treasury Department regarding the CTA's status. Official announcements will provide the most current information on reporting obligations.
- Prepare Documentation: Even though reporting is currently voluntary, organizing the necessary beneficial ownership information will facilitate compliance if the reporting requirements are reinstated.
- Consult Legal Counsel: Engage with legal professionals to understand how these developments affect your specific circumstances and to receive guidance on potential future compliance requirements.
- Review Your leafplan: Ensure all Business Interests and Other Entities are appropriately tagged as CTA reporting companies, and related contacts are tagged as beneficial owners.
Resources for More Information
- FinCEN's Beneficial Ownership Information Page: Provides comprehensive details on reporting requirements and updates on the CTA's status. Financial Crimes Enforcement Network (FinCEN)
- IRS Guidance on Beneficial Ownership Reporting: Offers additional insights into the reporting process and related tax implications. IRS
In summary, while the enforcement of the Corporate Transparency Act is currently paused due to legal challenges, businesses should remain vigilant and prepared for potential changes. Staying informed and consulting with legal experts will ensure readiness to comply with any future requirements.
