On December 23, 2024, the Fifth Circuit Court of Appeals issued an order allowing the federal government to enforce the Corporate Transparency Act (CTA) and its “Reporting Rule.” Under that rule, the vast majority of privately held entities created or registered to do business in the United States (Reporting Companies) must report detailed information about their owners to the Financial Crimes Enforcement Network (FinCEN). The reporting requirement had been paused by a Texas federal district court just under three weeks earlier, on December 3, 2024. The Fifth Circuit ruling reverses the Texas district court’s ruling pending the government’s appeal.
Enacted in 2021, the CTA and its implementing regulations require Reporting Companies to file their initial report with FinCEN by January 1, 2025. The report must include the name, date of birth, address, and an image of a driver’s license or passport of every “beneficial owner” of the Reporting Company (BOI Report). A “beneficial owner,” according to the statute and regulations, is any person or entity that owns 25% or more of the Reporting Company or otherwise exerts “substantial control” over it. The CTA’s purpose is to create a database of entity ownership in order to prevent the use of shell corporations for money laundering, fraud, financing of terrorism, and other illegal activities.
The plaintiffs, several Texas companies and a national business trade group, raised multiple constitutional challenges to the CTA and Reporting Rule, which the Fifth Circuit found were unlikely to succeed. The Fifth Circuit also held that the federal government would be irreparably harmed by “a last-minute injunction of a statute proposed and passed by the people’s representatives,” and that the “minimal” harm to businesses by having to comply with the reporting requirement was outweighed by “the public’s urgent interest in combatting financial crime and protecting our country’s national security.” The court noted that the preliminary injunction had “only been in place for less than three weeks as compared to the four years” that reporting companies “have had to prepare since Congress enacted to the CTA, as well as the year since FinCEN announced the reporting deadline.” The decision is Texas Top Cop Shop v. Garland, No. 24-40792 (5th Cir. Dec. 23, 2024).
As a result of the Fifth Circuit’s ruling, Reporting Companies are once again required to file their BOI Reports. In consideration of the Fifth Circuit’s ruling, FinCEN has issued a brief extension for Reporting Companies created or registered before January 1, 2024, who now have until January 13, 2025 to file their initial BOI Report with FinCEN. Previously, they were required to file by January 1, 2025. If your entity has already filed a BOI Report, then no further action is required.
Should you have any questions regarding the above, please contact the authors, the Garfunkel Wild attorney with whom you regularly work, or contact us at [email protected].