FinCEN Seeks Reinstatement of CTA Reporting
As foreshadowed in our prior alert, 2024 may not be done with the CTA just yet.
The Financial Crimes Enforcement Network (“FinCEN”) is seeking to reinstate its ability to enforce the Corporate Transparency Act (the “CTA”) following the issuance of a nationwide injunction earlier this month. In response to FinCEN’s motion to stay the injunction, the Fifth Circuit Court of Appeals has set an expedited briefing schedule through December 19. The accelerated timeline suggests the Fifth Circuit may rule on the government’s motion quickly, perhaps before the end of the year.
As a reminder, on December 3, the United States District Court for the Eastern District of Texas issued a nationwide preliminary injunction prohibiting the enforcement of the CTA. The court found that (1) the CTA was unlikely to satisfy the test for a valid exercise of legislative power by Congress under the U.S. Constitution and (2) the plaintiffs were likely to suffer irreparable harm in the form of compliance costs and the potential deprivation First and Fourth Amendment rights. While in effect, this decision prevents the government from enforcing the CTA on a nationwide basis.
However, FinCEN has asked the Fifth Circuit to either stay the district court’s injunction entirely or, in the alternative, to limit its scope to cover only those plaintiffs party to the original litigation and identified members of plaintiff organizations (e.g., members of the National Federation of Independent Business). If successful, either result would effectively reinstitute the beneficial ownership information reporting (“BOIR”) requirement for the vast majority of potential reporting companies.
If FinCEN prevails on appeal, it is unclear how much additional time (if any) the Fifth Circuit would afford companies to comply with the CTA’s deadlines. In the worst case for businesses, the Fifth Circuit could reinstate the CTA’s original filing deadlines, leaving millions of companies scrambling to comply with the law during the holiday season. Alternatively, the court could exercise its discretion to provide reporting companies with a short “grace period” to recommence their compliance efforts. Apart from any court-directed relief, FinCEN itself could also extend its CTA filing deadlines voluntarily given the national reliance on the injunction.
In any case, as of this writing on December 16, companies are not required to submit beneficial ownership reports to FinCEN, and the government remains prohibited from enforcing the CTA nationwide. In connection with its appeal, FinCEN has posted an “alert” to its BOIR website confirming that it will comply with the Eastern District of Texas injunction while it remains effective. FinCEN also affirmed that, while reporting companies may continue to voluntarily submit beneficial ownership reports, they “will not be subject to liability if they fail to do so while the preliminary injunction remains in effect.”
Miller Johnson’s CTA Task Force will be monitoring developments through the end of the year and into 2025. If you have any questions or concerns about the CTA, we encourage you to consult with counsel and to stay prepared. Thank you!