After a 6-week hiatus, I am back again with more updates about the Corporate Transparency Act’s (CTA) journey through federal court. For those of you tuning back in, this post relates to our firm’s series about the Corporate Transparency Act and Beneficial Ownership Reporting. Please follow the link here to see all our firm’s posts on this topic.
When I last posted about legal challenges to the Corporate Transparency Act in federal court (see here), a federal court in Texas had ordered a nationwide preliminary injunction to prevent the federal government from enforcing the BOI reporting requirements. As a quick aside, this followed a separate federal court case in Alabama (see here), and was appealed to the 11th Circuit (the next level in the chain of appeal for federal courts in Alabama), where the 11th Circuit still has yet to issue a ruling, so the injunction as it relates to the specific plaintiffs is still in force, though it admittedly might not be as much of a priority in light of the nationwide injunction from the Texas court.
Back to Texas. The government appealed the Texas court’s decision to the 5th Circuit (the next level in the chain of appeal for federal courts in Texas). On December 23, 2024, a panel from the 5th Circuit issued an opinion ordering that the injunction ordered by the Texas court be lifted. The 5th Circuit considered the same factors as the Texas court, and it determined that the government was likely to succeed in proving constitutionality of the CTA, not enforcing a law passed by Congress would harm the American people, and the burdens of complying are not estimated to be burdensome. FinCEN (the federal entity enforcing the CTA) then posted that it intended to delay the reporting deadline to January 13, 2025 (from January 1, 2025). On December 26, 2024, a separate panel on the 5th Circuit issued a separate opinion ordering the injunction back in force while the appeal continued. The rationale of the second panel was that the status quo of the injunction should remain until the appeal was complete. On January 23, 2025, the U.S. Supreme Court ordered the injunction lifted while the appeal continues. So to recap: (i) the Texas federal court ordered the nationwide injunction; (ii) the 5th Circuit ordered the injunction to stop; (iii) the 5th Circuit reversed itself and ordered the injunction to continue; and (iv) the Supreme Court ordered the injunction to stop.
Alright, so if the Supreme Court ordered the injunction to stop, that means that BOI reporting is back on, right? Not quite. On January 7, 2025, a separate federal judge in Texas ordered a nationwide injunction on the BOI reporting requirements. The analysis for this Texas federal judge was similar to the previous Texas federal judge, but with the variable fact pattern that the plaintiffs were owners of an LLC that owned a single rental property in Austin, Texas. FinCEN has since announced on its website that it will not enforce BOI reporting, but that reporting companies are invited to voluntarily file reports.
Now that an injunction related to the CTA and BOI reporting is back on, what does that mean for the readers (especially those who are beneficial owners)? Here are some takeaways:
- For the foreseeable future, FinCEN will not be enforcing the January 1, 2025 reporting deadline for companies formed before January 1, 2024.
- For the foreseeable future, FinCEN will not be enforcing the deadline for reporting companies formed in 2024 (within 90 days of formation) and for reporting companies formed post-2024 (within 30 days of formation).
- Despite the injunction, reporting companies might still consider filing BOI reports. This is for two reasons:
- As I mentioned above, FinCEN is still accepting voluntary submissions of BOI reports through its online portal.
- FinCEN will only comply with the order for as long as the order is in effect. That is notably different than FinCEN promising never to enforce the reporting requirements. If the injunction is overturned or expires for whatever reason, it would be reasonable to expect that the BOI reporting requirements will be back. Given the back-and-forth nature of the action in the courts in recent months, it is difficult to track when/for how long the injunction will be in effect.
- Getting reporting companies’ attorneys involved can help reporting companies interpret the court rulings and keep them abreast of developments to assist in making informed decisions.
Thanks for reading!