Update: CTA Enforcement Deadline Suspended by Court

We previously wrote about the Corporate Transparency Act (CTA) which requires all entities formed or registered to do business in the US, to report information relating to their ultimate Beneficial Owner to FinCEN in what is called a Beneficial Ownership Information (BOI) Report. The US Congress passed the CTA as an anti-money-laundering initiative in 2021 tasking the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) with implementing it.

FinCEN issued its Final Rule implementing the CTA on September 29, 2023, setting the initial enforcement date at January 1, 2024. This requires entities, formed or registered on or after January 1, 2024, to comply with the CTA by filing their initial BOI reports within 90 days of their formation, while entities formed or registered prior to January 1, 2024, are required to comply by January 1, 2025.

Perhaps unsurprisingly, the constitutionality of the CTA was quickly challenged. The National Small Business Association (NSBA) and one of its members brought suit claiming that the CTA would require law-abiding Americans to provide highly personal information to a government agency violating privacy protections, was unduly burdensome on small companies, and infringes on the powers of the US states to govern business. On March 1, 2024, a federal court in the Northern District of Alabama ruled for the plaintiffs holding that the CTA is unconstitutional because it “exceeds the Constitution’s limits on the legislative branch” and Congress’ authority to regulate non-commercial intrastate activity under the Commerce Clause.

Despite its broad holding, the Court issued a limited injunction against enforcement of the CTA, which applied only to the plaintiffs in this matter. FinCEN then issued a statement stating that in complying with the Court’s order it would not enforce the CTA against the named plaintiffs, including entities which were members of the National Small Business Association as of March 1, 2024. These entities were thus not required to report beneficial ownership information to FinCEN while the injunction remained in effect.

Other lawsuits have been filed against the CTA, including Texas Top Cop Shop v. Garland which was filed in the US District Court for the Eastern District of Texas. On December 3, 2024, this Court issued a nationwide preliminary injunction against the enforcement of the CTA, again questioning its constitutionality and its impact on small businesses. The Court stated that the nationwide preliminary injunction was necessary to provide meaningful relief, noting that the CTA impacts approximately 32.6 million businesses across the United States and that one of the plaintiffs, the National Federation of Independent Business, represents members nationwide. Specifically, the Court determined that “the CTA and Reporting Rule” are likely unconstitutional for purposes of a preliminary injunction. It has not made an affirmative ruling that the CTA and Reporting Rule are contrary to law or that they amount to a violation of the Constitution. It thus enjoined FinCen “from enforcing the Reporting Rule and the January 1, 2025, compliance deadline”. On December 6, 2024, the US Attorney General filed a notice of appeal to the Fifth Circuit Court of Appeals.

FinCen also responded quickly stating that it will comply with this Court’s order and that “reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.” The BOI reporting portal does remain open, and FinCen also stated that reporting companies may continue to voluntarily submit beneficial ownership information reports.

In general, the takeaway for companies that have not registered or filed BOI Reports is that they are not currently required to comply with the CTA, but further guidance or court decisions could reinstate the act’s requirements and enforceability. These companies should therefore follow the legal developments around the CTA and work with legal advisors to evaluate their ongoing obligations. If the injunction is overturned on appeal, these companies may need to act quickly to meet reporting deadlines. They may, therefore, not simply want to wait on the legal process but should consider having a compliance plan in place that will help mitigate any CTA risks should a compliance deadline be reinstated.