Fifth Circuit Reinstates Beneficial Ownership Reporting Injunction
12/31/2024 Update:
The injunction remains in place, and the Department of Justice has filed an application asking the U.S. Supreme Court to stay the injunction. The Supreme Court has given the plaintiffs until 4:00 pm on January 10 to file a response to the application.
12/26/2024 Update:
The United States Court of Appeals for the Fifth Circuit has reinstated the injunction preventing FinCEN from enforcing the Corporate Transparency Act and its regulations. Stay tuned as the merits panel of the Court is scheduled to hear arguments in March. In the meantime, entities are not required to file their BOI reports (barring intervention from the U.S. Supreme Court). We will keep you posted!
12/23/2024 Update:
On December 23. 2024, the U.S. Court of Appeals for the Fifth Circuit granted the government's motion for relief, issuing a temporary stay of the district court's order and injunction pending appeal. The Court also expedited the appeal to the next available oral argument panel. This means that the injunction issued by the Texas federal court has been lifted and non-exempt companies are required to file their beneficial ownership information reports.
Shortly after the court lifted the injunction, FinCEN issued a statement, granting a short extension for most filings. The FinCEN statement is reprinted here, in full:
In light of a December 23, 2024, federal Court of Appeals decision, reporting companies, except as indicated below, are once again required to file beneficial ownership information with FinCEN. However, because the Department of the Treasury recognizes that reporting companies may need additional time to comply given the period when the preliminary injunction had been in effect, we have extended the reporting deadline as follows:
- Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
- Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
- Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
- Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.
- Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.
- As indicated in the alert titled “Notice Regarding National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)”, Plaintiffs in National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.)—namely, Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024)—are not currently required to report their beneficial ownership information to FinCEN at this time.
12/19/2024 Update: Congress did not delay the BOI reporting requirements when they passed the government funding bill.
12/07/2024 Update: FinCEN has posted this statement in response to the federal court's preliminary injunction:
In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force. However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
The Corporate Transparency Act (CTA) plays a vital role in protecting the U.S. and international financial systems, as well as people across the country, from illicit finance threats like terrorist financing, drug trafficking, and money laundering. The CTA levels the playing field for tens of millions of law-abiding small businesses across the United States and makes it harder for bad actors to exploit loopholes in order to gain an unfair advantage.
On Tuesday, December 3, 2024, in the case of Texas Top Cop Shop, Inc., et al. v. Garland, et al., No. 4:24-cv-00478 (E.D. Tex.), a federal district court in the Eastern District of Texas, Sherman Division, issued an order granting a nationwide preliminary injunction that: (1) enjoins the CTA, including enforcement of that statute and regulations implementing its beneficial ownership information reporting requirements, and, specifically, (2) stays all deadlines to comply with the CTA’s reporting requirements. The Department of Justice, on behalf of the Department of the Treasury, filed a Notice of Appeal on December 5, 2024.
Texas Top Cop Shop is only one of several cases in which plaintiffs have challenged the CTA that are pending before courts around the country. Several district courts have denied requests to enjoin the CTA, ruling in favor of the Department of the Treasury. The government continues to believe—consistent with the conclusions of the U.S. District Courts for the Eastern District of Virginia and the District of Oregon—that the CTA is constitutional.
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.
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On December 3, 2024, a federal judge from the Eastern District of Texas (Sherman Division) issued a preliminary nationwide injunction, preventing FinCEN from enforcing the Corporate Transparency Act and its implementing regulations. In Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478, the judge ruled that the Corporate Transparency Act 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."
A preliminary injunction precedes a determination on the merits of a case. Specifically, Judge Mazzant ruled that "the CTA is likely unconstitutional as outside of Congress's power." This ruling, however, is not the end of the matter. On December 5, the federal government filed a notice of appeal with the U.S. Court of Appeals for the Fifth Circuit, challenging the preliminary injunction. As of this writing, FinCEN has not issued a statement addressing the ruling, and the filing portal continues to accept reports.
Although this court order prevents FinCEN from enforcing the CTA and its regulations, the preliminary injunction could be lifted at any time. Because the reporting deadline is approaching, reporting companies who have not filed should watch carefully for further guidance. We are awaiting a statement from FinCEN. In the meantime, it appears that companies may continue to file if they so choose. Those that do not file should be prepared to make that filing in the event the injunction is lifted. It should be noted that the court order does not specifically address new companies currently subject to the 90-day deadline for reporting. Although the broad injunction of enforcement should equally apply to them, the court did not offer a specific "need not comply" statement for this category of reporting companies.
Stay tuned for further updates!
For a thorough review of the Corporate Transparency Act requirements, read this article.