Federal Appeals Court Reinstates Corporate Transparency Act Injunction

On Dec. 26, 2024, the U.S. Court of Appeals for the 5th Circuit reinstated a nationwide preliminary injunction of the Corporate Transparency Act (CTA) and its implementing regulations. The CTA took effect on Jan. 1, 2024, and requires certain entities to report beneficial ownership information (BOI) and certain related information to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).

Background

The CTA was enacted in 2021 as part of the Anti-Money Laundering Act of 2020 to combat illicit financial activity, such as money laundering, tax fraud and financing of terrorism. The CTA requires certain business entities, or CTA “reporting companies” (including certain corporations, limited liability companies and certain other entities created or, with respect to non-U.S. entities, registered to do business in any U.S. state or tribal jurisdiction) to report information about the company and its beneficial owners (i.e., the individuals who own or control the business) to FinCEN.

Under the CTA, reporting companies created or registered before Jan. 1, 2024, were required to file their initial BOI reports by Jan. 1, 2025; reporting companies formed in 2024 were required to file within 90 days; and reporting companies formed in 2025 and beyond were required to file within 30 days of formation. FinCEN began accepting BOI reports on Jan. 1, 2024.

Highlights

• The CTA went into effect on Jan. 1, 2024, and required reporting companies to report BOI to FinCEN by Jan. 1, 2025.
• On Dec. 3, 2024, a Texas federal District Court preliminarily enjoined the CTA.
• On Dec. 23, 2024, the 5th Circuit temporarily stayed the injunction and FinCEN modified the reporting deadlines to begin on Jan. 13, 2025.
• On Dec. 26, 2024, the 5th Circuit reinstated the preliminary injunction, staying the requirement for reporting companies to file by Jan. 13, 2025.

Court Rulings

In Texas Top Cop Shop, Inc. v. Garland, a group of small businesses and the National Federation of Independent Business argued that the CTA was unconstitutional and sought a preliminary injunction to stay enforcement of the CTA, including its reporting requirements. In a decision issued on Dec. 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction of the CTA.  

On Dec. 23, 2024, the 5th Circuit issued a temporary stay of the injunction, which reinstated CTA enforcement and caused FinCEN to issue revised reporting deadlines to begin on Jan. 13, 2025.

However, on Dec. 26, 2024, the 5th Circuit reinstated the nationwide preliminary injunction. The injunction halts the enforcement of the CTA’s reporting requirements, including the Jan. 13, 2025, BOI reporting deadline for most covered entities.

Employer Takeaways

While reporting companies are not currently required to file their initial BOI reports by Jan. 13, 2025, the injunction is temporary, and the court will issue a final ruling sometime in 2025. Therefore, employers should anticipate uncertainty, continue to monitor for updates and remain prepared to comply with the law’s reporting requirements in the event the court ultimately declines to issue a permanent injunction.

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