IMPORTANT UPDATE: Corporate Transparency Act Back on Hold Again
December 27, 2024In an unexpected turn-around on December 26, 2024, a merits panel of the Fifth Circuit reinstated the nationwide preliminary injunction enjoining the enforcement of the Corporate Transparency Act (CTA) issued by the District Court in Texas Top Cop Shop, Inc. v. Garland. As a result, enforcement of the CTA is BACK ON HOLD for everyone, pending resolution of the underlying constitutional issues.
In reimposing the preliminary injunction, the merits panel slated the substantive appeal on the constitutional issues for review on an expedited basis. Under a just-announced expedited schedule, the Fifth Circuit set a deadline for all briefs for February 28, 2025, and calendared oral arguments for March 25, 2025. So, barring any further judicial intervention, the preliminary injunction should remain in place and CTA enforcement should therefore remain suspended until at least March 25, 2025.
In an update posted to its BOI Homepage on December 27, 2024, FinCEN provided some limited guidance on the effect of the Fifth Circuit’s latest action, stating 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." In the meantime, FinCEN remains open for business, and reporting companies may continue to comply voluntarily.
As before, FinCEN’s update did not address any filing extension if the CTA is eventually reinstated down the road. However, in the event, it seems reasonable to expect that FinCEN will issue another filing extension for this latest suspension, along the lines of the filing extension previously granted as a result of the CTA’s earlier suspension. In fact, it would be very helpful if FinCEN announced immediately any filing extension that potential reporting companies can expect in the event the CTA goes back into effect. Without advance guidance from FinCEN while the appeal is pending, many potential reporting companies may be forced to spend time and money to guard against the possibility that the Fifth Circuit may decide to reinstate the CTA on very short notice, only to have the Fifth Circuit actually decide that the CTA is unconstitutional.
In light of these new developments, potential reporting companies may feel safer in taking a "wait and see" approach on or at least slowing down their CTA compliance. Under the Fifth Circuit’s expedited calendar, any CTA deadline has been pushed off for almost three months, even if FinCEN does not grant another extension in the event it is ultimately successful in reviving the CTA. However, unless FinCEN issues advance guidance on whether it will allow a grace period in the event the CTA is ultimately reinstated, potential reporting companies that have paused or slowed their CTA compliance may face a difficult decision on whether to resume compliance as March 25 approaches.
To escape this legal limbo and avoid any risk of noncompliance, potential reporting companies may decide to continue with their CTA compliance despite the reinstated injunction. However, while the appeal is pending (for at least several months), these reporting companies may encounter reduced or no cooperation from third parties, when asking for information necessary to establish a CTA exemption or, in the absence of an exemption, to include on a beneficial ownership information report.
We are continuing to monitor this highly fluid situation and will provide additional updates if anything changes. In the meantime, if you need any assistance, please visit our CTA Resource Center for additional information or to contact a member of our CTA compliance team.
If you have any questions about this latest CTA development or need help choosing the right compliance strategy, please contact your Herrick attorney or any member of Herrick's CTA team.
Mark A. Limardo at + 1 212 592-1494 or [email protected]
Theresa Fortin Balducci at + 1 212 592-1481 or [email protected]
Daniel A. Etna at + 1 212 592-1557 or [email protected]
Fred R. Green at + 1 212 592-5910 or [email protected]
Leah Kelman at + 1 973 274-2004 or [email protected]
Ellen L. Shapiro at + 1 212 592-1533 or [email protected]
Louis Tuchman at + 1 212 592-1490 or [email protected]
© 2024 Herrick, Feinstein LLP. This alert is provided by Herrick, Feinstein LLP to keep its clients and other interested parties informed of current legal developments that may affect or otherwise be of interest to them. The information is not intended as legal advice or legal opinion and should not be construed as such.