As noted in a previous alert, the Corporate Transparency Act (CTA) requires “reporting companies” to file beneficial ownership information with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) by the end of 2024.
Recently, in a case claiming that the CTA is invalid, a federal District Court in Texas issued an order granting a nationwide preliminary injunction that stops enforcement of CTA while the case is litigated. The Department of Justice filed a Notice of Appeal on Dec. 5, 2024, but did not request a stay to lift the injunction.
This has created uncertainty as to how reporting companies that have not yet filed beneficial ownership information should respond. Since the preliminary injunction could be either stayed or reversed by the appellate courts, we have counseled most reporting companies to complete the CTA filing before the Dec. 31, 2024 deadline to avoid possibly missing the deadline if the preliminary injunction is lifted. That would avoid the exposure to the potentially substantial penalties for companies that fail to timely file.
FinCEN has now issued its own guidance on this question that includes the following statement:
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.
Crucially, while the statement reflects the intent of FinCEN to comply with the court’s order, there is no provision for a grace period to file in the event the court’s order is lifted. Since the order stayed the deadline to file, that period would presumably again start to run should the court’s order be lifted, which would allow 28 days to comply. However, that is not explicit in the FinCEN statement, which says only that reporting will not be required “while the preliminary injunction remains in effect.”
Those companies that have not yet filed and choose to delay doing so are encouraged to complete compilation of the required information, to monitor the status of the Texas litigation, and to be prepared to promptly make the required filings should the injunction be lifted.
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