Under the Corporate Transparency Act (CTA), which went into effect on January 1, 2024, many U.S. business owners are required to file corporate transparency reports with beneficial ownership information. But the CTA is currently on hold. Why and what impact does the pause have on you?

The CTA, enacted by Congress in 2021, requires many companies formed or operating in the United States to report information about their beneficial owners to Treasury’s Financial Crimes Enforcement Network (FinCEN), which will store this sensitive information in a secure, confidential database. The Department of Treasury has authority to enforce the CTA.

Based on guidance provided by FinCEN, starting on January 1, 2024, many domestic and foreign companies doing business in the United States were required to report their beneficial ownership information (BOI) to FinCEN.  Under the law, more than 30 million covered entities formed before 2024 were originally required to report the names, dates of birth and identification numbers for any owners with 25% or more of a controlling interest by January 1, 2025.

However, on December 26, 2024, the U.S. Court of Appeals for the Fifth Circuit stopped enforcement of the CTA, pausing the beneficial ownership reporting requirements for U.S. small business owners. This reverses the earlier decision of December 23, 2024 that reinstated the CTA and its reporting requirements. The CTA remains on hold as a result.

Recently, the U.S Department of Justice (DOJ) requested the U.S. Supreme Court lift a Texas judge’s injunction against the CTA (and affirmed by Fifth Circuit), arguing that the CTA’s compliance deadlines should take effect while the Fifth Circuit hears the full case.  The DOJ contends that even if the Court finds that some provisions of the CTA exceed Congress’ authority under the Commerce Clause, the bulk of the law is constitutional. Interestingly, the DOJ also requested that the Court address the larger question of whether district courts can issue universal injunctions covering non-parties to a statutory challenge.

According to the DOJ, the Fifth Circuit’s injunction of the CTA stops the enforcement of the entire Act and prevents the DOJ from performing the job Congress vested it to do. The prevention of DOJ from performing its duties, as argued by the DOJ, “undermines the United States’ ability to press other countries to improve their own anti-money laundering regimes and severely disrupts the ongoing implementation of the act.”  The DOJ argues that on the other side, the Act only minimally burdens the companies who filed for the injunction.

For example, the Texas Top Cop Shop, one of the parties that requested an injunction in a Texas district court, was only asking the court to address the CTA as it applied to that one specific company. But when a judge for the U.S. District for the Eastern District of Texas issued an injunction to stop the compliance with and enforcement of the CTA, the injunction applied to both Texas Top Cop Shop and non-parties to the injunction (any company formed and applicable to the CTA). Weeks later, a three-judge panel from the Fifth Circuit stayed the injunction, saying the law was “likely constitutional on its face” and scheduled the case for oral argument. But just three days after the panel lifted the injunction, a larger Fifth Circuit panel reinstated the injunction “to preserve the constitutional status quo” ahead of the arguments. Since the oral arguments are not scheduled to occur until the end of March, the DOJ is now requesting that the U.S. Supreme Court step in and vacate the Fifth Circuit’s decision and allow the enforcement of the CTA.

Against this backdrop of conflicting court rulings, a new administration has taken office in Washington. It remains to be seen how vigorously, if at all, the new head of the DOJ will pursue lifting the injunction or enforcement of the CTA. It is understandable why companies potentially affected by the CTA might be utterly confused about what to do. At the moment, the CTA is on hold. But, companies should consult with their corporate attorneys about whether any compliance requirements remain in effect as to their businesses.

The attorneys in our Austin and Dallas office are available to answer any questions you mya have about the CTA and its current applicability/enforcement. Please contact us at info@gstexlaw.com with any questions you may have.

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