Beneficial Ownership Information Reporting in Flux
Update! On January 23, 2025, the US Supreme Court granted the application to stay the injunction while the case proceeds through its appeal. Stay tuned.
The future of the Corporate Transparency Act’s beneficial ownership information reporting requirements remains uncertain at the beginning of 2025.[i] While companies may voluntarily file their reports at www.fincen.gov, a preliminary court injunction is currently preventing FinCEN from enforcing the law, and companies cannot be penalized if they do not file. Barring requested intervention from the Supreme Court, the injunction will remain in place until at least after the Fifth Circuit hears oral arguments on March 25, 2025. You can follow Supreme Court developments here.
Entities existing prior to 2024 were supposed to file their reports by January 1, 2025. Entities formed in 2024 had 90 days to file their first report. The drama began on December 3, 2024, when a federal judge from the Eastern District of Texas (Sherman Division) paused the reporting requirement by issuing a preliminary nationwide injunction preventing FinCEN from enforcing the CTA and its implementing regulations. In Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, the judge ruled that the CTA and its reporting rules "may not be enforced, and reporting companies need not comply with the CTA's January 1, 2025, BOI reporting deadline pending further order of the Court."
Although a motions panel from the U.S. Court of Appeals for the Fifth Circuit initially lifted the injunction on December 23, 2024, a merits panel from the same court reinstated the preliminary injunction three days later. The injunction continues to prevent FinCEN from enforcing the CTA and its regulations. The panel took the action “to preserve the constitutional status quo while the merits panel considers the parties’ weighty substantive arguments.” The panel also set an expedited briefing schedule and scheduled oral argument for March 25, 2025.
On December 31, 2024, the U.S. Justice Department filed an application asking the U.S. Supreme Court to lift the injunction. On January 3, 2025, the Supreme Court requested a response from the plaintiffs in the action by January 10. The response urges the Court to leave the preliminary nationwide injunction in place. Twenty-five states and other interested parties filed amicus briefs also supporting the injunction. The respondents contend that the Commerce Clause does not give Congress the right to regulate the existence, as opposed to the activity, of a business entity. They urge this regulation is a power long reserved for the states. Among other arguments, respondents contend that Congress cannot use the Necessary and Proper clause to regulate entities pursuant to its taxing power. They also allege that the CTA violates the First Amendment rights of individuals by foreclosing their rights to anonymously own a business entity. The Justice Department filed a reply, asserting there is a strong presumption in favor of allowing Acts of Congress to remain in force pending judicial review and that the government is likely to succeed on the merits.
In a related development, on January 7, 2025, a judge from the U.S. District Court for the Eastern District of Texas (Tyler Division) issued a second preliminary injunction preventing the enforcement of the CTA in a different case, Smith v. United States Department of Treasury, 6:24-cv-336-JDK. Although Texas Top Shop Cop and Smith were the first cases to issue a nationwide injunction, a different federal court ruled that the CTA was unconstitutional on March 1, 2024. In the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), the court entered a final declaratory judgment, concluding that the CTA exceeds the Constitution’s limits on Congress’ power. The court enjoined the Department of the Treasury and FinCEN from enforcing the CTA only against the plaintiffs in that case. Specifically, the court found that Congress did not possess the power to pass this law through its foreign affairs power, pursuant to the Commerce Clause, or through its taxing power. This case is on appeal to the United States Court of Appeals for the 11th Circuit. During 2024, other courts in Oregon, Virginia and Michigan denied requests for injunctions, finding that the CTA is likely constitutional.[ii]
Entities subject to filing requirements should watch closely for further developments. We will provide updates on any actions from the courts, FinCen or Congress.
[i] Pub. L. 116-283 § 6401. Congress enacted the law to address the problem of shell corporations contributing to financial crimes: money laundering, tax fraud, human and drug trafficking, foreign corruption, etc. Congress enacted the law on January 1, 2021, after overriding a Presidential veto. The law required non-exempt companies to report information about their companies and their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), beginning in 2024. Entities in existence before January 1, 2024, were supposed to file their first beneficial ownership information reports by January 1, 2025.
[ii] Firestone v. Yellen, 2024 WL 4250192 (D. Or. Sept. 20, 2024); Cmty. Ass’ns Inst. v. Yellen, 2024 WL4571412 (E.D. Va. Oct. 24, 2024); Small Bus. Ass’n of Mich. v. Yellen, No. 1:24-cv-00314-RJJ-SJB (W.D. Mich. Apr. 29, 2024).