You'll Know After March 25 (The Corporate Transparency Act, pt. III)

The Nature of Changing Events

Let me tell you, these articles on the Corporate Transparency Act keep aging like milk. But that’s the nature of reporting on current events. Things will change and there’s always the possibility what you’ve written will become inaccurate. This is (once again) the case with the Corporate Transparency Act, until it wasn’t.

Some Background on the Corporate Transparency Act

By way of background, historically, unless you operate in a highly regulated industry, like banking, insurance, or securities, or you receive a benefit from the Internal Revenue Service, like 501(c) tax-exempt organizations, you did not need to file any information with the federal government to lawfully form a business entity. All you’d need to do is file some basic information with the secretary of state in your state of incorporation or organization and you’d be ready to go.

The Corporate Transparency Act (the “CTA”) changed all of this. It requires “Reporting Companies”, defined broadly enough to include almost business entities typically formed at the secretary of state office, like corporations and limited liability companies (“LLCs”) or that file registration statements with that office, like partnerships, to file a Beneficial Ownership Interest Report (“BOIR”) with the Financial Crimes Enforcement Network (“FinCEN.”)

A Reporting Company’s BOIR must provide the Name, Date of Birth, Address, the identifying number and issuing jurisdiction of form of identification like an American passport or Driver’s License of every individual who directly or indirectly controls a Reporting Company, owns or controls at least 25% of a Reporting Company’s ownership interest. If a Reporting Company is controlled by another business entity, for example a holding company and its portfolio companies, the BOIR must contain the name, tradenames/DBAs, address, and tax identification number of the controlling entity.

If the BOIR is not timely filed, there are civil penalties of $591 per day or criminal penalties of fines up to $10,000.00 and imprisonment of up to 2 years. The deadline varied depending on when your business entity was formed. For business entities formed before January 1, 2024, the deadline was January 1, 2025. For business entities formed during 2024, the deadline was 30 days from receiving notice actual or public notice the formation was effective.

The District Court's Nationwide Injunction

Given the pro-privacy nature of American culture and its corresponding legal traditions, the CTA and BOIR caused numerous lawsuits to be filed to stop them. In one, called Texas Top Cop Shop v. Garland, the U.S District Court for the Eastern District of Texas had recently granted the plaintiffs request for a nationwide injunction against the FinCEN enforcing the CTA’s BOIR requirements. FinCEN indicated it would comply with the order as long as it remained in effect. Many people, me included, believed this would be the end of the CTA.

The Department of Justice's Appeal to the Fifth Circuit Court of Appeals

The Department of Justice, which at the time of this writing, is headed by Merrick Garland, appealed the order granting the injunction to the Fifth Circuit Court of Appeals. On December 23, 2024, a panel of judges on the Fifth Circuit Court of Appeals granted the Department of Justice’s motion to stay the injunction, which reinstated the CTA and the BOIR requirements. With the requirements reinstated, FinCEN was clear to enforce the civil and criminal penalties associated with failing to file a BOIR by its original deadlines.

FinCEN's Updated Reporting Timeline

However, FinCEN, aware that many reporting companies may need additional time to comply extended the deadlines as follows:

• Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)

• Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.

• Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.

• Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.

• Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.

A Different Fifth Circuit Panel Brings It (The Injunction) Back

So that’s that for the time being, right?

Wrong.

The panel of Fifth Circuit judges who granted the injunction on December 23, 2024, ordered that the government’s appeal be evaluated on the merits by the next available panel.

On December 26, 2024, a second panel vacated the part of the motion granting the government’s request to pause the injunction. This means the district court’s injunction went back into effect and the CTA’s BOIR requirement cannot be enforced by FinCEN.

Oh, so that’s it for the time being, right?

Yes, for now, it should be. The second panel scheduled oral arguments on the merits of the government’s appeal for March 25, 2025. Until then, it’s unlikely that the enforceability of the CTA’s BOIR requirements will change.

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