If you’re reading this, you’ve probably put a bunch of time into getting ready for compliance with the Beneficial Ownership Information reporting under the Corporate Transparency Act. You already know that there has been a nationwide injunction put in place to temporarily stop implementation of the requirements.
Texas Top Cop Shop, Inc. v. Garland (E.D. Tex. Dec. 3, 2024) is one of four cases floating through the judicial system attacking the Corporate Transparency Act. It is only one that has caused much of a ripple. The judge didn’t overturn the CTA. He merely issued the injunction based on the likelihood that the the CTA would be found to be unconstitutional.
Back in March in Alabama, the judge in National Small Business United v. Yellen merely applied his ruling to the parties to the case. If you were a member of the National Small Business United group, you’ve been celebrating for a while. That judge found the CTA to be unconstitutional.
On the other side, Courts in the District of Oregon and the Eastern District of Virginia have come down the other way. The judges in Firestone v. Yellen (D. Or. Sept. 20, 2024) and Community Associations Institute v. Yellen (E.D. Va. Oct. 24, 2024) found that the CTA was likely to be found constitutional and denied the request for an injunction.
All four decisions are under appeal. Do we think all four appellate courts are going to deny injunctions? Maybe. If we get splits, that would make it very likely that the US Supreme Court will take up the case to reconcile the dramatically different results.
Then we have to add in whether the Trump administration will continue to support the appellate process. Who knows what will happen after January 20.
I wish FinCEN was offering a better on-ramp. The current position has a hair-trigger.
[R]eporting 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.
The way I read this if the injunction is lifted on January 2, then Reporting Companies have to immediately file to be in compliance.
You can currently file voluntarily. My provider has told me that the automated filing process has been disabled while the injunction is in place.
Hopefully, FinCEN will quickly get a better idea of timing and extend the compliance deadline out for several months while the litigation is ongoing.
The latest short term funding bill has a provision moving the compliance date from January 1, 2025 to January 1, 2026. Of course that could change.
The US filed a motion to stay the injunction pending the appeal. That was (no surprise) denied on December 17.
On the appeal, motions had to be filed this week with the Fifth Circuit Court of Appeals. FinCEN is asking for an emergency motion for stay pending appeal. Maybe the Court is looking to make a ruling by the end of the year. If it stays the injunction, that will cause havoc on many people’s year-end as they ramp back up for the filing process.
Based on filing on December 17 and December 18, the Fifth Circuit is allowing amicus filings on the appeal. That makes it seem less likely that a ruling will come out by year end.
Sources:
- After Nationwide Injunction of Corporate Transparency Act, FinCEN Suspends Reporting Requirements as Four Circuits Grapple With Act’s Constitutionality by Skadden
- Fifth Circuit General Docket in Texas Top Cop Shop
- Eastern District Docket for Texas Top Cop Shop
- BOI reporting deadline extension proposed in House budget bill
(update this morning from the original post)