CTA Update: 5th Circuit Poised to Issue Decision; Congress Likely to Weigh-In

As our previous blog highlighted, numerous small businesses were relieved of their quickly approaching New Years Day deadline to submit beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) under the Corporate Transparency Act (CTA) when a federal district court in Texas issued a nationwide preliminary injunction to suspend those requirements. 

By way of background, on December 3rd, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in Texas Top Cop Shop v. Garland et al., No. 4:24-cv-478 (E.D. Tex. Dec 3, 2024) that temporarily blocks the enforcement of the CTA and its implementing regulations. In that case, the District Court concluded that Congress exceeded its constitutional authority under the Commerce Clause and the Necessary and Proper Clause when it enacted the CTA and enjoined the enforcement of the CTA and its regulations, stayed the January 1, 2025 reporting deadline, and declared that reporting companies need not comply with that deadline “pending further order of the Court.” 

The District Court’s ruling is currently on appeal to the Fifth Circuit. The U.S. Government also filed an emergency motion with the Fifth Circuit on December 13 seeking a stay of the nationwide injunction pending the outcome of the appeal and requested a ruling no later than December 27. It is expected that a ruling will come from the Fifth Circuit by December 27, 2024, potentially as early as December 23, 2024. If the effect of the ruling is to stay the nationwide preliminary injunction, businesses formed prior to January 1, 2024, that have chosen not to file their CTA reports by the January 1, 2025, deadline could find themselves rushed to file their CTA reports by January 1, 2025. 

Meanwhile, Congress is poised to enact legislation supported by the American Bar Association (ABA) in the coming days that would extend the CTA filing deadlines for reporting companies formed prior to January 1, 2024, until January 1, 2026. The ABA and its allies raised concerns about the widespread lack of awareness in the small business and legal communities regarding the upcoming CTA filing requirements and the need for an extension to conduct additional education and outreach, thus House and Senate leaders agreed to add language to its spending bill that funds the federal government through March 14. The House and Senate have until December 20 to pass the legislation and send it to President Biden for his signature to avert a government shutdown. It remains uncertain whether this legislation, and the corresponding CTA report filing extension until January 1, 2026, for reporting companies formed prior to January 1, 2024, will be signed into law. 

For companies formed prior to January 1, 2024, we believe the most conservative approach is to have all CTA report information collected and readily available for filing, or, even better, to voluntarily file CTA reports in compliance with the original CTA filing deadline, as if the injunction were not in place. This puts a filer in the best position to meet any filing obligation if (a) the injunction is unexpectedly lifted without an extension of the original, but currently enjoined, deadline or (b) the legislation in front of Congress is not signed into law. 

Companies that believe they may be subject to the CTA should closely monitor this matter, and consult with their CTA advisors as necessary, to understand when, if at all, they need to comply with the CTA’s requirements and to allow for sufficient lead time to prepare BOI reports in advance of any filing deadline that may be re-established (with or without adjustment) in the future. 

We will continue to monitor developments and will provide additional information as it becomes available. If you have any questions regarding the CTA or the matters discussed herein, please do not hesitate to contact your BrownWinick attorney.