December 2024 gave businesses and practitioners whiplash trying to follow the bouncing ball about whether the Corporate Transparency Act was enforceable or unconstitutional. This article summarizes the events of the past month and describes the current status of the law.
December 2024 was a busy month for the Corporate Transparency Act (CTA) and lawyers challenging or defending its constitutionality that saw multiple periods in which the CTA was alternatively (a) enforceable under penalty of law or (b) unconstitutional and voluntary. By the time the month ended and the new year began, enforcement of the CTA was paused and prohibited, but the CTA’s online portal remained open for “voluntary” filings.
Recap: December 2024
Below is a recap of the events of the past month, followed by a summary of the law’s current status as of January 4, 2025, and guidance for reporting companies trying to figure what to do.
- Start of December 2024: the month began with the CTA being (mostly) effective and enforceable. Many reporting companies formed before 2024 were scrambling to complete their beneficial ownership information (BOI) reports by the CTA’s deadline of January 1, 2025 for reporting companies formed before 2024. In March 2024, a federal district court in Alabama ruled that the CTA was unconstitutional in Nat'l Small Bus. United v. Yellen, 721 F. Supp. 3d 1260 (N.D. Ala. March 1, 2024), but that court’s injunction against enforcement of the CTA applied only to the plaintiffs. Separately, federal district courts in Oregon and the Eastern District of Virginia had refused to block enforcement of the CTA, holding that the law was likely to be found constitutional.
- December 3, 2024: in a decision titled Texas Top Cop Shop, Inc. v. Garland, a federal district court in the Eastern District of Texas found that the CTA was likely unconstitutional as outside of Congress’ powers. As a result, the court issued a preliminary injunction that prohibited the federal government from enforcing the CTA. Unlike the injunction issued by the Alabama federal district court, this injunction applied nationwide.
- December 6, 2024: the Financial Crimes Enforcement Network (FinCEN), a bureau within the US Treasury Department that enforces the CTA, stated that in light of the preliminary injunction issued in Texas Top Cop Shop, Inc., reporting companies are not currently required to file BOI reports and “are not subject to liability if they fail to do so while the order remains in force.” However, FinCEN would keep the online BOI portal open and operating to accept “voluntary” filings. This alert was issued shortly after FinCEN filed a notice of appeal of the Texas Top Cop Shop, Inc.
- December 20, 2024: although a version of the federal government funding bill that circulated earlier this week had included a provision delaying the deadline for reporting companies formed before 2024 to complete their BOI reports by one year to January 1, 2026, the version of the funding bill that was ultimately signed into law on December 20-21 did not include any extension or amendment of the CTA.
- December 23, 2024: in an unpublished order on appeal of the Texas Top Cop Shop, Inc. decision, a panel of the Fifth Circuit Court of Appeals in New Orleans issued a stay of the preliminary injunction previously issued by the Texas federal district court. The appellate court found, among other things, that the CTA likely was constitutional. This stay meant that the CTA was instantly back in effect and enforceable nationwide, with the exception of the plaintiffs in the Nat'l Small Bus. United
- December 23, 2024: later in the day following the Fifth Circuit’s stay of the injunction, FinCEN issued another alert delaying filing deadlines for some, but not all, reporting companies. Notably, reporting companies formed before 2024 were given an extension of their filing deadline from January 1, 2025, to January 13, 2025. However, reporting companies formed between September 25, 2024, and December 2, 2024, received no extension of their report deadlines.
- December 26, 2024: a different panel of the Fifth Circuit Court of Appeals vacated the unpublished order previously issued by the Fifth Circuit on December 23, 2024. The new panel took this action “in order to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.” With this reversal, the nationwide preliminary injunction issued in Texas Top Cop Shop, Inc. was back in force, and the CTA once again became voluntary and unenforceable.
- December 27, 2024: FinCEN issued a new alert clarifying that reporting companies were yet again not required to file BOI reports or subject to liability under the CTA. However, as before, the CTA filing portal would remain open to accept “voluntary” filings.
- December 31, 2024: the federal government submits a petition to the Supreme Court asking the top court to stay the preliminary injunction prohibiting enforcement of the CTA. Justice Alito, who handles emergency matters from the Fifth Circuit, has asked the plaintiffs in the Texas Top Cop Shop, Inc. to reply to the federal government’s petition by January 10, 2025.
Current status and state of play
Therefore, as of the end of 2024 and the beginning of 2025, (1) the CTA is not enforceable, and (2) reporting companies are not required to file BOI reports and are not subject to liability under the CTA. However, as was shown last month, this status could change at a moment’s notice. The Supreme Court could take swift action on the federal government’s petition in a manner that alters the current status of the CTA. In addition, a separate appellate court, the Eleventh Circuit Court of Appeals, has heard oral arguments on the federal government’s appeal of the Nat'l Small Bus. United decision and could issue a separate ruling on the constitutionality of the CTA at any time.
What reporting companies should do now
The strategies being followed by reporting companies and practitioners in the wake of the above are all over the map. Ultimately, businesses have a risk judgment call to make. If a business does not want to go through the time, expense, and headache of completing BOI report filings, it’s not required to do so at this time. The business could simply hold off taking any steps towards CTA compliance until there’s been a further development in the courts reinstating the CTA. If the courts allow the law to take effect again, FinCEN’s deadline extensions in the wake of the Fifth Circuit’s initial stay of the injunction indicates that FinCEN is sensitive to the issue of reporting companies dealing with this uncertainty. Therefore, it would not be unreasonable to hope that FinCEN would issue new deadline extensions if the CTA subsequently is reinstated.
However, it’s not guaranteed that FinCEN will delay enforcement of the law if the injunction is lifted. Further, FinCEN’s initial deadline extensions indicate that a second round could be configured in such a manner that some reporting companies don’t receive any relief. It’s possible that the injunction issued by the Texas federal district court could be lifted or impacted by the Fifth Circuit, the Eleventh Circuit, and/or the Supreme Court suddenly and without advance notice. In such an event, reporting companies may need to scramble to collect all required information and complete filings quickly. Therefore, businesses wishing to err on the side of caution may decide that it’s prudent to continue and complete all BOI reports that would be required under the CTA as soon as possible.
