On December 26, 2024, a panel of the US Court of Appeals for the Fifth Circuit vacated an order issued by a different panel just days before that had stayed the nationwide preliminary injunction suspending enforcement of the Corporate Transparency Act (CTA) and its implementing regulations. The Fifth Circuit's action has the effect of restoring the nationwide preliminary injunction that had been in effect since early December and once again putting on hold companies' obligations to file beneficial ownership information with the US Financial Crimes Enforcement Network (FinCEN).
On December 23, 2024, a motions panel composed of three judges of the Fifth Circuit had granted an emergency motion by the federal government to stay the nationwide preliminary injunction of the CTA, including with respect to the named plaintiffs. While one judge of the motions panel would not have stayed the injunction with respect to the named plaintiffs, the three judges were in agreement that the nationwide aspect of the injunction should be stayed. That motions panel, however, would not resolve the substance of the appeal. Rather, a merits panel of three judges, which may not include any of the judges from the motions panel, hears and disposes of the appeal.
As noted above, the merits panel vacated the motions panel's order four days later. The merits panel's order states that it is intended "to preserve the constitutional status quo while the merits panel considers the parties' weighty substantive arguments," and the court subsequently issued a briefing schedule, although it did not disclose the composition of the merits panel that issued the order and is handling the case. The parties' deadlines to submit briefs extend through the end of February 2025, and the case is scheduled for oral argument on March 25, 2025.
FOR NOW, FILING "ON A VOLUNTARY BASIS"
On December 27, 2024, FinCEN released a statement on its website once again noting that "reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force." FinCEN will continue to accept beneficial ownership reports on a voluntary basis.
POSSIBLE NEXT STEPS BY COURTS AND CONGRESS
These latest developments add fresh uncertainty as to when—or if—the CTA's reporting obligations will eventually become effective. Given the Fifth Circuit's oral argument date of March 25, 2025, it is likely that the injunction will continue to remain in effect through at least then, absent further intervention by the Fifth Circuit or, potentially, the Supreme Court.
Given that three other US Courts of Appeals (for the Fourth, Ninth, and Eleventh Circuits) have pending appeals of challenges to the CTA—and, in two of those, the district court concluded the CTA was likely constitutional—there remains the possibility of a contrary ruling that could increase the likelihood that the Supreme Court intervenes.
Alternatively, the new Congress could potentially step in to extend the compliance deadlines, as was briefly proposed as part of the year-end funding package, or to repeal the requirements altogether. Further, the Trump Administration could invoke various administrative options to further delay the effectiveness of the reporting obligations or could potentially decline to continue defending the CTA in court, as the Obama Administration did with constitutional challenges to Section 3 of the Defense of Marriage Act in 2011.
MONITORING STILL REQUIRED
For now, companies that may be subject to the CTA's reporting obligations and that have not yet filed beneficial ownership reports once again have some relief from these requirements. As the events of the last week have demonstrated, however, companies should continue to closely monitor the ongoing litigation and statements from FinCEN in case there are further changes to the scope of the injunction. Companies should continue to evaluate whether filings may be required (or whether an exemption applies) and should consider proactively monitoring beneficial ownership and collecting information so as to be able to make filings within a relatively short period if the requirements are reinstated.
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