Dec 23, 2024
Fifth Circuit Court Resumes Corporate Transparency Act Enforcement After Nationwide Injunction Lifted
Overview
Just before the holidays, the U.S. Fifth Circuit Court of Appeals unanimously approved the government’s request to resume enforcing the Corporate Transparency Act (CTA). This ruling overturned a previous nationwide injunction that had temporarily halted the requirement for companies to file Beneficial Ownership Information (BOI) reports. In response, the Financial Crimes Enforcement Network (FinCEN) adjusted compliance deadlines and reiterated its commitment to the law’s enforcement.
Revised Deadlines for BOI Reporting
FinCEN extended the deadlines for compliance:
- For companies formed before January 1, 2024: The original January 1, 2025 deadline has been extended to January 13, 2025.
- For companies formed between January 1, 2024, and December 23, 2024: These companies now have an additional 21 days to file, with a new filing deadline of January 13, 2025.
- For companies eligible for disaster relief: These companies will adhere to the later of their extended deadlines or January 13, 2025.
FinCEN clarified that entities involved in the National Small Business United v. Yellen case are currently exempt from submitting BOI reports.
Backdrop of Legal Challenges
In Texas Top Cop Shop, Inc. v. Garland, a Texas district court had previously issued a preliminary injunction blocking the U.S. Treasury Department from enforcing the CTA. This injunction was based on constitutional concerns raised by the National Federation of Independent Business (NFIB).
However, FinCEN maintained that the CTA is constitutional, a stance supported by courts in Virginia and Oregon. Despite compliance challenges, FinCEN encouraged voluntary BOI reporting during the legal proceedings.
On December 23, 2024, the Fifth Circuit reversed the nationwide injunction. The appellate judges stated that the CTA likely operates constitutionally, particularly for corporations engaged in interstate commerce. They dismissed concerns about compliance burdens, emphasizing that businesses had ample time to prepare since the CTA’s passage in 2020.
FinCEN’s Position on CTA Enforcement
A FinCEN spokesperson underscored the critical role of the CTA in national security, highlighting its importance in combating money laundering, drug trafficking, and terrorist financing. The agency emphasized that the CTA ensures a level playing field for small businesses while closing loopholes exploited by bad actors.
Ongoing Legal Proceedings
The Top Cop Shop case is just one of several legal challenges to the CTA. Appeals are also pending in the Fourth and Ninth Circuit Courts of Appeals, demonstrating the contentious nature of the legislation and its implementation.
Looking Forward
With compliance deadlines extended and the Fifth Circuit ruling in place, FinCEN remains focused on enforcing the CTA to enhance financial system transparency and security. However, ongoing legal battles in other courts indicate that the debate over the CTA’s constitutionality and enforcement is far from over.
This development marks a significant step in the U.S. government’s efforts to bolster its defenses against illicit financial activities while balancing the compliance challenges faced by businesses nationwide.