U.S. businesses have been granted a reprieve from the rapidly approaching January 1, 2025, deadline to file initial reports under the Corporate Transparency Act (CTA). The CTA went into effect January 1, 2024, requiring an estimated 32.6 million businesses to make unprecedented disclosures of the individuals who ultimately own and control them. The CTA was enacted to assist law enforcement, intelligence and other government agencies in preventing criminals and terrorist organizations from using shell and front companies for their criminal enterprises.
On December 3, 2024, Judge Amos Mazzant of the U.S. District Court for the Eastern District of Texas entered an order in the case Texas Top Cop Shop, Inc. v. Garland preliminarily enjoining the enforcement of the CTA. The injunction has immediate, nationwide effect. The order states that the CTA is “likely unconstitutional,” and businesses need not comply with the CTA, including the January 1, 2025, initial reporting deadline, “pending further order of the Court.”
On December 5, 2024, the U.S. Justice Department filed its notice of appeal to the United States Court of Appeals for the Fifth Circuit. No schedule has been set for the appeal. As of this writing, the government has not filed a request for a stay of the District Court’s injunction order pending appeal.
The Financial Crimes Enforcement Network (FinCEN), the division of the U.S. Treasury Department that processes CTA reports and regulates and enforces the CTA, has issued a statement that it will comply with Judge Mazzant’s injunction order “as long as it remains in effect.” FinCEN has not stated whether it will provide a grace period to file CTA reports if the injunction is lifted. FinCEN is still accepting CTA filings, and FinCEN stated that businesses may continue to voluntarily file CTA reports if they choose to do so, but as long as the injunction is in place, they are not required to file CTA reports and will not be subject to fines or penalties for not filing. FinCEN’s statement goes on to note its belief that the CTA is constitutional, citing conclusions of U.S. District Courts for the Eastern District of Virginia and the District of Oregon.
The ultimate fate of the CTA in the courts is uncertain. With CTA’s broad impact on the U.S. business community and conflicting decisions in courts across the country, it is possible that the issue may reach the U.S. Supreme Court. Only time will tell. Neither FinCEN nor the Courts have provided guidance regarding how the information of those who have already filed CTA reports will be handled in the event the courts permanently strike down the CTA.
Further information about the CTA is available on FinCEN’s website. Also, check out our prior Client Alert about the CTA.
For CTA questions, please reach out to your Raines attorney or e-mail a member of our CTA team at RainesCTA@raineslaw.com.
The Raines CTA Team:
Derek Dundas
Email: ddundas@raineslaw.com
Direct: 310-620-9338
David Madden
Email: dmadden@raineslaw.com
Direct: 312-704-2177
Jonathan Richter
Email: jrichter@raineslaw.com
Direct: 310-730-4375
Clare McKeown
Email: cmckeown@raineslaw.com
Direct: 312-625-9048
Johnathan Jianu
Email: jjianu@raineslaw.com
Direct: 424-343-8632