Updated with FinCEN Response to Dec. 26 Fifth Circuit Decision
Chaos is officially the perfect word to describe the situation around the Corporate Transparency Act (“CTA”).
On Thursday, a U.S. Court of Appeals for the Fifth Circuit panel issued an order to vacate Monday’s order made by a different panel in the same court. Thursday’s order blocks CTA enforcement, which now means that CTA reporting to FinCEN is once again voluntary. Required reporting of Beneficial Ownership Information (BOI) has been suspended until the matter continues its way through the court system.
The order says: "The merits panel now has the appeal, which remains expedited, and a briefing schedule will issue forthwith. However, in order to preserve the
constitutional status quo while the merits panel considers the parties’
weighty substantive arguments, that part of the motions-panel order granting
the Government’s motion to stay the district court’s preliminary injunction
enjoining enforcement of the CTA and the Reporting Rule is VACATED."
Click here to read the Dec. 26 order in Texas Top Cop Shop vs. Garland, 5th Cir., No. 24-40792, order 12/26/24.
FinCEN has published updated guidance, responding to the decision:
"In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports."
CTA Background
The CTA is a federal law that requires businesses to disclose and report information about their owners and controllers to FinCEN. It was enacted by Congress in 2021 as an expansion of the anti-money laundering laws, intended to prevent terrorist financing, corruption, tax fraud, and other illicit activity.
It went into effect on Jan. 1, 2024, but courts have gone back and forth all year on the constitutionality of the act.
On March 1, 2024, the Northern District of Alabama Northeastern Division, in National Small Business United v. Yellen, No. 5:22-cv-1448 (N.D. Ala.), ruled the CTA unconstitutional. However, the holding only applied to the plaintiffs in the Alabama federal case.
On December 3, 2024, Judge Amos L. Mazzant III, of the U.S. District Court for the Eastern District of Texas, granted a nationwide preliminary injunction to temporarily block the enforcement of the CTA, ruling the act unconstitutional. The opinion was published in Texas Top Cop Shop, Inc. v. Garland (E.D. Tex., No. 4:24-cv-00478).
On December 23, 2024, the Fifth Circuit overturned the Texas District Court’s nationwide injunction regarding the Corporate Transparency Act (“CTA”), requiring companies to report.
But now the December 26, 2024, order has vacated the requirement.
