As we reported in a previous client alert, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction on December 3, 2024 to stop the Federal government from enforcing the Corporate Transparency Act (the “CTA”) and the regulations implemented under the CTA. The case is captioned as Texas Top Cop Shop, Inc. et al. v. Garland, et al. The government promptly appealed this ruling to the United States Court of Appeals for the Fifth Circuit, which issued an order on December 23rd to stay the injunction (simply put, to reinstate the CTA’s filing requirements). Perhaps in response to this order the Financial Crimes Enforcement Network (FinCEN), the agency charged with enforcing the CTA, extended the filing deadline for companies formed prior to 2024 to January 13, 2025. In a surprising development, a different panel of the Fifth Circuit issued an order on December 26th setting aside the court’s December 23rd order. The Court also scheduled a hearing on the merits of the government’s initial appeal of the District Court order for late March. FinCEN issued a press release on December 28th confirming that the Texas Top Cop Shop injunction remains in effect and that reporting companies are not currently required to file beneficial ownership reports (although voluntary reports are being accepted on the FinCEN website).

What does all of this mean for you? For the moment, reporting companies are not required to file beneficial owner reports and that seems unlikely to change until late March. On December 31st, however, the government filed an application with the United States Supreme Court to lift the injunction (i.e., reinstate the CTA’s filing requirements) pending the outcome of the Fifth Circuit decision, so that timeline may change. As noted in our earlier alert, it is unclear whether FinCEN will provide a grace period or forgo imposing penalties for filings made if the injunction is lifted and the CTA is reinstated. Criminal penalties are severe and include fines of up to $10,000 and/or prison terms of up to two years. FinCEN may also impose civil penalties of up to $591 per day for failure to file. Reporting companies will have to weigh the risks of not filing their beneficial owner reports against the burden of filing those reports.

For more on the Corporate Transparency Act, please visit our website.

As you probably heard, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction on December 3, 2024 to stop the Federal government from enforcing the Corporate Transparency Act (the “CTA”) and the regulations implemented under the CTA. The case is called Texas Top Cop Shop, Inc. et al. v. Garland, et al. The court referred to the CTA as “quasi-Orwellian” and decided that it was “likely unconstitutional.”

It took just two days for the U.S. Department of Justice to appeal this ruling to the United States Court of Appeals for the Fifth Circuit. The Financial Crimes Enforcement Network (FinCEN), the agency charged with enforcing the CTA, issued a press release reassuring reporting companies that no action will be taken against them for failing to file their beneficial ownership information while the Texas court’s order remains in place. FinCEN did not, however, indicate whether it would provide a grace period for filing should the injunction be lifted. It noted that reporting companies may continue to voluntarily file those reports during the period that the stay is in effect. Yesterday, the Department of Justice filed a motion with the District Court to lift the injunction while the Fifth Circuit considers the appeal. If this motion is granted, reporting companies (other than the plaintiffs named in the Texas Top Cop Shop case) would be required to file their beneficial ownership reports as if the District Court injunction had never been entered.

Last year, we warned you in our business law blog that a new law, the federal Corporate Transparency Act, would be going into effect that would require many businesses to provide information about their owners and anyone who controls the company to the federal government. We now know that this law will take effect on January 1, 2024. Reporting companies in existence prior to that date have until January 1, 2025 to comply; companies formed on or after that date must comply within 30 days after formation. Once the data has been entered, companies are obligated to update any information that becomes outdated or is incorrect. The information will be included in a database that will be used to combat money laundering, financing of terrorism, and other illegal activities.