BOI Reporting Back on Hold
In a continuing series of judicial actions, on December 26, 2024, the U.S Court of Appeals for the Fifth Circuit vacated the previously reported stay it granted just three days prior and reinstated the nationwide injunction of Financial Crimes Enforcement Network’s (FinCEN) Corporate Transparency Act (CTA) and its reporting requirements. As a result, no filings under the CTA, including the initial Beneficial Ownership Information (BOI) reports, are currently required by law.
This is the latest action in a saga of rapid reversals and fast-moving decisions. Given the fluidity of the situation, we urge all our business clients to closely monitor the developments impacting the CTA to ensure you are prepared to follow requirements should the injunction be lifted once again. You can keep up with the latest decisions here.
Background
The federal CTA became effective on January 1, 2024, and requires certain small business entities existing as of and established after January 1, 2024, to report their existence and provide the identity of their beneficial owners. Small business owners throughout the U.S. operating as registered entities with the state, including limited liability companies and corporations, must comply with this law. This legislation was passed in an effort by the federal government to identify business entities that were created by criminal organizations for the purpose of hiding their illegal activities. Shortly after its enactment, it was hit with backlash, with many questioning its constitutionality.
Opponents of this law say it infringes on First Amendment rights to free association and Fourth Amendment rights to keep their information private while also infringing on states' rights. Those in favor of the law state that it is a necessary measure given how easy it is to form corporations in the United States without disclosing the identity of who owns or controls the entity, which criminals and terrorists have been taking advantage of.
Timeline
We have broken down the chronology of events for you as follows:
December 3, 2024: A judge in the U.S. District Court for the Eastern District of Texas issues a preliminary injunction staying the CTA on the basis that it is likely unconstitutional. Following the District Court’s ruling, FinCEN recognized the court order and stated that reporting companies are not required to file a BOI report and are not subject to liability if they fail to do so while the applicable order remains in force.
December 23, 2024: The Fifth Circuit’s motions panel overturns the preliminary injunction, reimposing the CTA and its reporting deadlines. FinCEN then extends the CTA reporting deadline to January 13, 2025.
December 26, 2024: A separate merits panel of the Fifth Circuit vacates the motions panel’s December 23rd decision “in order to preserve the constitutional status quo” while considering the arguments. Consequently, no businesses are required to file CTA reports as of today.
December 26, 2024: The Government has petitioned the Supreme Court to intervene and stay the Texas Top Cop Shop preliminary injunction. The response to the Solicitor General's Application to the Supreme Court has been requested by Justice Alito by January 10, 2025.
Next Steps
While, for now, there is a reprieve from the compliance obligations under the CTA, the Court of Appeals for the Fifth Circuit will hear oral arguments on the merits of the case on March 25, 2025, and we await decisions in other pending cases, the petition to the United States Supreme Court, or possible actions by Congress or the executive branch regarding enforcement.
