UPDATE: 12/26/24 Flip it and Reverse It. Fifth Circuit Vacates 12/23 Stay Decision - Injunction of CTA Back in Place
PRELIMINARY INJUNCTION
Judge Prevents the Enforcement of the Corporate Transparency Act and Beneficial Ownership Information Reporting
12/23/24 Update: The Fifth Circuit granted the Stay of the Injunction, FinCEN requiring companies to complete BOI reports by January 13, 2025
12/26/24 Update: Fifth Circuit vacates 12/23 grant of Stay of Injunction - BOI Reporting back on pause - for the moment
12/26/24 UPDATE: In a fact pattern that is increasingly sounding like a law school exam question, the plaintiffs in Texas Top Cop Shop appealed the Fifth Circuit’s 12/23 decision on the motion to stay, and the merits panel now has that appeal. In order to “preserve the constitutional status quo” the Fifth Circuit vacated the 12/23 decision, which had granted the government’s motion to stay the preliminary injunction. In the words of Missy Elliott, the plaintiffs essentially called in on the Fifth Circuit’s request line and they finally picked up the phone, looked at their decision again and flipped it and reversed it. The case is still moving forward on an expedited basis, so the ultimate decision is TBD, but for now BOI reporting to FinCEN is back on pause.
12/23/24 UPDATE: In response to FinCEN’s emergency request to stay the preliminary injunction granted on December 3, 2024, the Fifth Circuit Court of Appeals granted the request to stay the preliminary injunction. Companies formed prior to January 1, 2024 now have until January 13, 2025 to submit their BOI filing to FinCEN https://fincen.gov/boi . It is estimated that between 9 and 10 million companies who are required to file BOI reports have not yet done so. It is possible that additional court or legislative activity will take place prior to the extended deadline, and it is unclear what enforcement efforts will be taken by the government for a failure to report (the law allows for civil penalties of up to $591/day for noncompliance and prison time). For now, businesses should plan to submit their BOI report prior to January 13, 2025. The reporting process is fairly straightforward and individuals with multiple reporting obligations may find the process made more streamlined by obtaining a FinCEN ID at https://fincenid.fincen.gov/landing .
What is Texas known for? Cowboys…. good food… the Alamo… judicial rulings???
In what is becoming a seemingly familiar occurrence, on December 3, 2024, in Texas Top Cop Shop v Garland et al., a judge in the Eastern District of Texas issued a preliminary injunction on the enforcement of the Corporate Transparency Act (CTA), which includes the requirement for most businesses to report its Beneficial Ownership Information (BOI) to the Financial Crimes Enforcement Network (FinCEN). One of the stated goals of the reporting requirement was to fight financial crime. The deadline for businesses in existence prior to January 1, 2024 was fast approaching at the end of this month, with businesses created during 2024 having a 90-day window to file. As a result, millions of businesses have already filed their BOI report with FinCEN, but millions more have not.
So what does this ruling mean? Well, the ruling does not roll back the law itself, only acts to prevent current enforcement. The ruling is for a preliminary injunction, so the case will move forward to a final decision by the judge. Judge Mazzant was pretty direct in the ruling, indicating that the CTA was likely unconstitutional and unduly burdensome on small businesses. When considering the fact that the judge granted a country-wide preliminary injunction, a form of extraordinary relief, together with the reasoning provided in the ruling, the direction of the ultimate decision in the case seems pretty clear.
President Elect Trump has already indicated a desire to streamline and limit regulation. It may well be that with the new administration, the CTA is on the chopping block to limit administratively, or there may be an effort to repeal or modify the law legislatively. Only time will tell.