On December 3, 2024, a federal court issued a nationwide preliminary injunction against the enforcement of the CTA, which temporarily halted the reporting requirements that were set to take effect on January 1, 2025. In light of the uncertainty regarding the future of the CTA and the compliance obligations of reporting companies caused by this injunction, we recommend that clients continue to prepare their beneficial ownership information reports in anticipation of the CTA being effective.
In the recent case, Texas Top Cop Shop, Inc., et al. v. Garland, et al., the U.S. District Court for the Eastern District of Texas held that the CTA was “likely unconstitutional” and effectively hit the pause button on the CTA until the Court makes its final ruling. FinCEN responded to this ruling by publishing a statement on its website stating that FinCEN will comply so long as the injunction remains in effect and that reporting companies will not face liability for failing to file their beneficial ownership reports during the injunction.[1] The government filed an emergency motion to stay the injunction pending appeal on December 12, 2024, and the Court responded by issuing an order requiring the Plaintiffs to respond to the government’s motion by Monday, December 16. Plaintiffs timely filed their response, which positions the Court to issue its decision by December 27 and potentially reinstate the January 1, 2025 CTA deadline.
It is unclear what the future holds for the CTA. Courts have been divided on this issue and of the four cases brought against the CTA this year, two courts have upheld the CTA, and two courts have found the CTA unconstitutional. There is also a high chance that either Congress or POTUS take action regarding the CTA. The fact that the Fifth Circuit accelerated the briefing schedule, requiring the Plaintiffs to file their response to the government’s emergency motion, may indicate that the Fifth Circuit intends to reinstate the CTA filing obligations in some fashion prior to January 1, 2025.
In the midst of all the uncertainty surrounding the CTA and this case, it is prudent for companies to stay prepared and keep their beneficial ownership information up-to-date. We advise our clients to stay informed and continue preparing their beneficial ownership information reports.
References:
https://acrobat.adobe.com/id/urn:aaid:sc:VA6C2:5423b72b-e67d-4da3-80a7-9f9a2492787b
https://acrobat.adobe.com/id/urn:aaid:sc:VA6C2:258096aa-0556-4e13-a4b5-4f5823758d2b
https://acrobat.adobe.com/id/urn:aaid:sc:VA6C2:83332897-a5f5-4d73-9379-799e18af31d7
[1] “While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.”
Disclaimer: The information provided on this page is for informational purposes only and does not constitute legal advice or create an attorney-client relationship with Krevolin & Horst.
