Dec 5, 2024
As we addressed in our October, 2024 client alert (Link to Article), the Corporate Transparency Act (“CTA”) represents the effort of Congress to end anonymity of ownership of corporations, limited liability companies and certain other entities (“Reporting Companies”) as a means to combat the use of such Reporting Companies for providing a veil to criminal activities and money laundering in the United States. Pursuant to the CTA, Reporting Companies formed prior to January 1, 2024[i] are required to submit, on or before January 1, 2025, a report to FinCEN (Financial Crimes Enforcement Network, an enforcement agency within the U.S. Department of the Treasury) identifying information about the entity itself, as well as its beneficial owners (i.e. individuals who own or control twenty-five percent or more of the Reporting Company and/or exercise substantial control over such entity). Such beneficial ownership information (“BOI”) includes each such owner’s full legal name, date of birth and current address.
On December 3, 2024, a federal judge issued a nationwide preliminary injunction that has temporarily suspended the government’s enforcement of the CTA and all reporting obligations thereunder. The United States District Court for the Eastern District of Texas ruled in favor of the plaintiffs in the case of Texas Top Cop Shop, Inc. et al. vs. Garland (U.S. Attorney General). The Court ruled that the reporting requirements under the CTA “likely” overstep constitutional boundaries and that corporate regulation has traditionally fallen under the states’ jurisdiction. In addition, the Court found that the CTA significantly burdens businesses with compliance costs and lacks safeguards against privacy violations that could arise from misuse of data the businesses are required to provide to FinCEN, including sensitive BOI information.
The Court explicitly decided that the preliminary injunction applies nationwide and stated that neither the CTA nor its related regulations may be enforced. In other words, entities that are Reporting Companies under the CTA do not need to comply with the CTA’s filing deadlines, including the January 1, 2025, BOI reporting deadline for entities formed prior to January 1, 2024.
Please note that, while the Court has suspended the January 1, 2025 compliance deadline and enjoined nationwide the enforcement of the CTA’s reporting obligations thereunder for now, this decision and/or its nationwide application may be short-lived. We anticipate the government will act quickly to seek expedited relief from the District Court’s preliminary injunction, and there are several different legal options available to accomplish this outcome. As such, we advise reporting companies to either proceed with their filings if they choose in order to avoid uncertainty and hurried, last-minute compliance should the reporting obligations to FinCEN be reinstated or, at a minimum, prepare for potential compliance in order to be able to quickly file a BOI report if and when compliance with the CTA is once again required. Reporting companies should not expect or rely on the government granting an extension of the compliance deadlines if that occurs.
Jackson Tidus attorneys are ready to assist you in complying with the CTA and its filing requirements. Accordingly, if you have questions about the CTA or need help with filings, changes to your governance documents or other guidance or assistance, please do not hesitate to contact Jackson Tidus.
Elizabeth T. Hall, Esq.
phone: 949-851-7466
email: ehall@jacksontidus.law
Mona Goodarzi
phone: 949-851-7627
email: mgoodarzi@jacksontidus.law
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