Corporate Transparency Act Update: Federal Court Pauses Reporting Requirements
The Corporate Transparency Act (CTA), enacted in 2021, is a federal law designed to combat illegal activities such as money laundering, terrorist financing, and tax fraud. Under the CTA, certain domestic and foreign entities doing business in the United States are required to report beneficial ownership information to the Financial Crimes Enforcement Network (FinCEN). The law took effect on January 1, 2024, with an initial filing deadline of January 1, 2025 for existing businesses, and a 90-day filing window for new businesses. For a more detailed review of the CTA, please see our prior newsletter.
Recent Developments
In the latest legal challenge to the CTA, Texas Top Cop Shop, Inc. v. Garland, on December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against the enforcement of the CTA. The court’s decision:
- Blocks the enforcement of the CTA’s reporting requirements
- Stays the January 1, 2025 compliance deadline for filing Beneficial Ownership Information (BOI) reports
The government has appealed this decision to the U.S. Court of Appeals for the Fifth Circuit. However, while the injunction remains in effect, FinCEN has announced that compliance with the CTA is voluntary. It remains unclear what the filing deadline will be if the federal government wins the appeal and reporting requirements are reinstituted.
Recommendations on Voluntary Compliance
Accordingly, business owners who have not completed their CTA filing will need to decide whether or not to voluntarily comply with the original January 1, 2025 deadline. Given the current legal uncertainty surrounding the CTA, business owners should consider the following:
- Stay Informed: Continue to monitor legal developments regarding the CTA, as the situation may change rapidly.
- Assess Your Reporting Status: Determine whether your business would be classified as a “reporting company” under the CTA.
- Prepare Documentation: Although compliance is currently voluntary, consider gathering the necessary information for a Beneficial Ownership Information report.
- Consider Voluntary Submission: While not currently required, you may choose to voluntarily submit BOI reports to FinCEN. This could potentially ease future compliance if the injunction is lifted.
- Review Internal Policies: Evaluate your company’s governing documents and consider incorporating provisions that facilitate the collection of required information from beneficial owners.
- Consult Legal Counsel: Given the complexity of the situation, we recommend seeking legal advice tailored to your specific circumstances.
Remember, while reporting companies are not currently required to file BOI reports and will not face penalties for non-compliance during the injunction, this is a temporary situation. We advise maintaining readiness to comply with the CTA should the injunction be lifted.
Mason T. Smith
757-399-7506 | 252-722-2890
msmith@hooklaw.net
Parlaying his experience in social work, the military, and public benefits, Mason T. Smith focuses on wealth transfer planning, long-term care planning, tax planning, and elder law. Mr. Smith is a graduate of the University of Richmond School of Law, where he focused on resolving issues related to taxation, estate planning, and corporate governance through coursework and internships with Dominion Energy and the US Commodity Futures Trading Commission. Mr. Smith was awarded the CALI Award for Excellence in Estate & Gift Tax for achieving the highest grade in his class. Prior to beginning his legal education, Mr. Smith earned his Master of Social Work from the University of South Carolina, where he provided guidance and counseling to at-risk youth, interfaced with Medicaid to ensure the financing of in-home care for foster children, and helped protect the legal rights of persons with disabilities living in care facilities. In this position, Mr. Smith completed extensive Social Security Administration training to receive federal security clearance. He has also served in the US Army, performing as a musician (French Horn) in the band at Fort Jackson, SC, in ceremonies, graduations, and parades across the Southeast.
