Update on the Corporate Transparency Act Saga

For those who may have been away for the holidays and missed the ongoing saga regarding the Corporate Transparency Act (CTA), this Tax Blog post will get you up to speed with the recent developments.

To review, the new reporting regime for Beneficial Ownership Information (BOI) pursuant to the CTA is a federal law that went into effect on January 1, 2024, and has been covered extensively in previous posts to this Tax Blog. The BOI reporting requirement is aimed at preventing illegal financial activities by increasing transparency in business ownership. This is achieved by requiring companies to disclose information about their “beneficial owners” to the Financial Crimes Enforcement Network (FinCEN). A “beneficial owner” is anyone who, directly or indirectly, owns 25% or more of the company, or who exercises significant control over it. In most instances, existing companies were required to file their BOI report with FinCEN no later than January 1, 2025.

Many have argued that the CTA is an example of governmental overreach, and is overly burdensome to small businesses. On December 3, 2024, in the case of Texas Top Cop Shop v. Garland et al., the U.S. District Court for the Eastern District of Texas granted the plaintiffs’ motion for a preliminary injunction, holding that they were likely to succeed on the merits of their claim that the CTA exceeds Congress’s enumerated powers.  The court granted a universal injunction prohibiting the enforcement of the BOI reporting requirements anywhere. Therefore the BOI filing requirement was on hold pending appeal of the injunction.

What followed was a roller coaster.  To summarize:

• The government defendants in Texas Top Cop Shop filed a motion in the Texas district court to stay the injunction pending appeal of the case. On December 17 the court issued an order denying that motion.

• The defendants then filed a motion with the Fifth Circuit Court of Appeals seeking a stay of the injunction pending appeal. On December 23, this motion was granted by a motions panel of the Fifth Circuit Court of Appeals. The BOI reporting requirements appeared to be back in force.

• Recognizing that reporting companies may need additional time to comply with the reporting requirements given the period when the preliminary injunction was in effect, FinCEN extended the reporting deadlines in certain respects, including extending the January 1, 2025 deadline to January 13, 2025.

• On December 26, a merits panel for the Fifth Circuit vacated the stay of the injunction granted earlier by the Fifth Circuit motions panel.  The BOI reporting requirements were once again enjoined.

• On December 31 the defendants filed an application with the U.S. Supreme Court requesting a stay of the Texas district court’s injunction. That application is pending, and can be found here:

https://www.supremecourt.gov/DocketPDF/24/24A653/336329/20241231163238372_24aGarland%20v%20Texas%20Top%20Cop%20Shop.pdf

Bottom Line:  As of the date of this Tax Blog post, the preliminary injunction remains in place, and the BOI filing requirements are currently not in effect.  But there is an application before the U.S. Supreme Court to once again stay the injunction.  We await further developments.  In the meantime, reporting companies and their professional advisors should be aware of the BOI reporting requirements, and should be ready comply if the injunction is stayed again.