After months of getting the word out about the Corporate Transparency Act (“CTA”), the U.S. District Court for the Eastern District of Texas issued a nationwide injunction against enforcement of the CTA and relieving reporting companies from filing the Beneficial Ownership Information Report (“BOIR”) pending a final determination.
In August of this year, we published an extensive article explaining that the CTA requires most privately held companies organized in the United States to file a report with the Treasury Department’s Financial Crimes Enforcement Network, or “FinCEN.” A company which was not exempt from reporting had to identify any individual who, directly or indirectly, exercises “substantial control” over the company or owns or controls 25% or more of the company, each being a “beneficial owner.”
For companies in existence earlier than January 1, 2024, registration had to be completed by December 31 of this year. Reporting companies created in 2024 had 90 days to file. Reporting companies created beginning January 1, 2025, would have had only 30 days to file the BOIR.
The Texas District Court stated in its opinion that its injunction was “nationwide” and further ordered that “enforcement of the reporting rule … is … hereby enjoined, and the compliance deadline is stayed. … Neither may be enforced and reporting companies need not comply with the CTA’s January 1, 2025 BOI reporting deadline pending further order of this Court.”
At least one commentator has taken the view that because of the specific reference to the January 1, 2025, deadline, the injunction only pertains to reporting companies in existence as of December 31, 2023, and not those created in 2024 and which may be hereafter, as their filing deadlines are 90 days and 30 days, respectively. FinCEN has clarified that while the injunction remains in effect, reporting companies are not required to file BOIRs and no company will be subject to liability for failure to file. Such clarification should be sufficient for all reporting companies to suspend filings until the injunction and underlying case is decided.
Although the Texas court issued a nationwide injunction, its decision is only preliminary. Procedurally, the plaintiffs have only shown that they have a “likelihood of success on the merits,” not that they have prevailed on the merits. In fact, other courts have held that the CTA and related BOIR is constitutional and will be enforced. As of this writing, the Treasury Department has appealed the Texas circuit court’s decision. There are multiple outcomes, some of which could happen in a matter of days, others over the course of months, if not years.
It is unclear what might happen procedurally in the near term, and thus the best option might be to prepare to file the BOIR within the time period required under the CTA, but wait until there is further guidance from FinCEN, the Fifth Circuit Court of Appeals, or possibly even the U.S. Supreme Court. Voluntary reporting is still permissible, and thus that option remains open.
If you need assistance in navigating compliance with the CTA, or other corporate compliance matters, please reach out to either David P. Weiss at 314.561.5078 or Mary Grimes at 314.561.5086.