Key Takeaways:
- The U.S. Fifth Circuit Court of Appeals stays a preliminary nationwide injunction of the Corporate Transparency Act previously issued by the U.S. Federal District Court for the Eastern District of Texas.
- In response, FinCEN extends certain filing deadlines into mid-January 2025, including for non-exempt companies created prior to 2024 who otherwise would have had to file initial reports by January 1, 2025.
- Plaintiffs-appellees seek rehearing en banc with decision requested by January 6, 2025.
On December 23, 2024, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit ("Fifth Circuit") issued an Order staying the nationwide preliminary injunction issued earlier in the month by a district court in Texas enjoining enforcement of the Corporate Transparency Act ("CTA") and the related reporting rule issued by the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCEN").
Describing the CTA as "imposing modest disclosure requirements to facilitate a regulatory scheme aimed at combatting financial crimes," the Fifth Circuit found the government: 1. was likely to succeed on the merits in demonstrating that the CTA is constitutional ("enacting the CTA was within its [Congress'] commerce power"); 2. demonstrated irreparable harm ("a last-minute injunction of a statute proposed and passed by the people's representatives necessarily inflicts irreparable harm"); 3. showed that the balance of equities favors issuing a stay; and 4. also showed that "the public's urgent interest in combatting financial crime and protecting our country's national security" favors a stay. The Fifth Circuit expedited full consideration of the appeal on the merits, so it will likely be argued in the next few months.
As covered in a prior alert, on December 3, 2024, the U.S. District Court for the Eastern District of Texas (the "District Court") issued a nationwide preliminary injunction in favor of the plaintiffs in Texas Top Cop Shop, Inc. et al. v. Garland. The injunction enjoined the enforcement of the CTA (31 U.S.C. § 5336) and the Reporting Rule (31 C.F.R. 1010.380) and stays the compliance deadline under § 705 of the Administrative Procedure Act (APA) throughout the U.S. The Texas federal court found that the CTA is likely unconstitutional because it goes beyond Congressional powers under the Commerce Clause or the Necessary and Proper Clause in relation to any enumerated power, concluding that the plaintiffs demonstrated a substantial likelihood of success on the merits of their Tenth Amendment challenge. The Texas federal court did not consider the plaintiffs' additional challenges under the First and Fourth Amendments.
As a result of the Fifth Circuit staying the District Court's nationwide preliminary injunction, reporting companies (other than the plaintiffs covered by a more limited injunction issued by a federal district court in Alabama) must again comply with the CTA's beneficial ownership information ("BOI") reporting requirements.
FinCEN Extends Reporting Deadlines
In response to the Fifth Circuit's ruling, FinCEN announced it has extended certain reporting deadlines as follows:
| Date of Creation/Registration of Reporting Company | New Reporting Deadline | Previous Reporting Deadline |
|---|---|---|
| Prior to January 1, 2024 | January 13, 2025 | By January 1, 2025 |
| On or after September 4, 2024, that had a filing deadline between December 3, 2024, and December 23, 2024 | January 13, 2025 | Between December 3, 2024, and December 23, 2024 |
|
On or after December 3, 2024, and on or before December 23, 2024 |
111 days from date of creation/registration (90 days + additional 21 days) |
90 days from date of creation/ |
In taking this action, FinCEN likely recognized that the majority of reporting companies had yet to submit filings at the time the injunction was issued by the District Court, that a rush by those who had not yet filed was likely to crash its BOI reporting system, and that the stay was issued days before Christmas and very close to the original reporting deadline (i.e., by January 1, 2025) for companies created prior to 2024.
Plaintiffs-Appellees Seek En Banc Review
On December 24, 2024, the plaintiffs-appellees sought en banc review (i.e., review by the entire Fifth Circuit) of the three-judge panel's decision. Plaintiffs-appellees are requesting that the full Fifth Circuit decide the issue of whether a nationwide injunction is appropriate by January 6, 2025, which would be before the new FinCEN reporting deadlines. Whether the full Fifth Circuit would reinstate the nationwide injunction remains to be seen.
Next Steps
Numerous court challenges to the CTA continue to work their way through various federal district and appellate courts, and may ultimately reach the U.S. Supreme Court. Reporting companies should continue to monitor developments in these cases. In addition, there are efforts in Congress to repeal the CTA.
Pending judicial or congressional action, reporting companies must continue to make all required filings under the CTA to FinCEN. Companies that had paused CTA compliance activities (such as assessing the availability of exemptions, determining beneficial owners, and obtaining required information from beneficial owners) during the pendency of the nationwide injunction should resume those activities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
