To File or Not to File: Corporate Transparency Act Next Steps

Herrick partner, Mark A. Limardo, spoke with Thomson Reuters regarding the next steps for business entities after a Texas Federal District Court halted enforcement of the Corporate Transparency Act (CTA) just weeks before the filing deadlines. 

“It’s a preliminary injunction, so this is not a final determination,” said Mark. And the “nightmare scenario” is that the injunction is lifted and neither the court nor the government provides a grace period for filing. Mark noted that entities are torn on how to handle the next steps following the decision. You either continue to spend time and money on law that may never go into effect,” or that may not go into effect until “way down the line,” or you risk “getting caught short” if the appellate court lifts the injunction.

Mark further outlined the complexities of deciding whether to proceed with filing. For an entity with a simple structure, like “a single member LLC that runs a corner store,” filing will be straightforward.  Mark suspects they will move forward with their filing. But other clients with more complex filings might take the opposite approach, finding that filing is “expensive” and “takes a lot of time away from management.”

However, if a client has “a lot of entities,” the penalties for non-filing could be steeper, Mark explained. Some clients might file by the January 1 deadline, concluding that it's not worth the risk. 

Mark further noted that under the wording of FinCEN’s alert — reporting companies “will not be subject to liability if they fail to [file their report] while the preliminary injunction remains in effect.” However, The alert doesn’t tell you “what’s going to happen when the injunction comes off,” he added, creating uncertainty for entities.

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