The national injunction on CTA filing imposed by the Eastern District of Texas Court Tuesday provides millions of business owners with a good possibility – but just a possibility – of permanent relief from this poorly thought-out law.
With the year-end filing deadline looming, where do things stand?
- The DOJ filed an appeal to get the injunction lifted last Thursday, December 5th. No word on when the 5th Circuit might rule. Will it come before or after the end of the year?
- FinCEN meanwhile posted a notice on its BOI landing page that it would comply with the court order and that covered entities are, for the moment, under no obligation to complete their CTA filings. The site is still open if you want to file “voluntarily.”
- Talks with leadership and the banking committees have been moving forward, and it appears a one-year delay of the filing deadline – providing much needed clarity – is a very real possibility.
- FinCEN reports that less than 10 million of the 36 million covered entities have filed as of the beginning of December with only 1 million new filings taking place each week. That’s sure to slow as a result of the court order, suggesting something in the range of 20 million small businesses will be out of compliance at the end of the year if filing resumes.
In practical terms, this means many businesses who have yet to file are hitting the pause button for now but continuing to prepare in the event 1) the injunction gets lifted and 2) the legislative delay fails to develop.
In terms of likelihood, we believe it is unlikely the 5th Circuit stays the injunction this close to the filing deadline, particularly with so many covered businesses not in compliance yet. Meanwhile, the odds of legislated relief appear to rise by the day. So hope for the best but prepare for the worst? A clear statement by Congress or the 5th Circuit really would be welcome right now.
Court Decision
On Tuesday, the Federal District Court issued an 80-page preliminary ruling and injunction in favor of NFIB and the business community as a whole. Similar to an earlier court decision last March in Alabama, the court found the CTA exceeded Congress’ authority under the Constitution:
At its most rudimentary level, the CTA regulates companies that are registered to do business under a State’s laws and requires those companies to report their ownership, including detailed, personal information about their owners, to the Federal Government on pain of severe penalties. Though seemingly benign, this federal mandate marks a drastic two-fold departure from history. First, it represents a Federal attempt to monitor companies created under state law—a matter our federalist system has left almost exclusively to the several States. Second, the CTA ends a feature of corporate formation as designed by various States—anonymity. For good reason, Plaintiffs fear this flanking, quasi-Orwellian statute and its implications on our dual system of government. As a result, Plaintiffs contend that the CTA violates the promises our Constitution makes to the People and the States. Despite attempting to reconcile the CTA with the Constitution at every turn, the Government is unable to provide the Court with any tenable theory that the CTA falls within Congress’s power. And even in the face of the deference the Court must give Congress, the CTA appears likely unconstitutional. Accordingly, the CTA and its Implementing Regulations must be enjoined.
DOJ Appeal
The DOJ appealed the injunction on Thursday. Here’s Forbes on the process from here:
On December 5, 2024, the Financial Crimes Enforcement Network (FinCEN) filed an appeal against the nationwide preliminary injunction issued by the U.S. District Court for the Eastern District of Texas, which had halted enforcement of the Corporate Transparency Act (CTA). The appeal challenges the court’s decision that the CTA likely exceeds Congress’s constitutional authority.
The appellate court’s response to FinCEN’s appeal is pending. The court is expected to move swiftly to either uphold the injunction, modify its scope, or overturn it, potentially reinstating the CTA’s reporting requirements of the December 31, 2024 deadline. Given this uncertainty, we recommend that businesses remain prepared to comply with the CTA should the injunction be lifted. This includes gathering necessary beneficial ownership information and staying informed about legal developments.
What counts as “swiftly” is unclear, but it would be nice to have some clarity in the next week. The more time that goes by, the more difficult it will be for all those “paused” businesses to resume their filing plans on a timely basis.
FinCEN Notice
On Thursday or Friday, FinCEN posted a statement indicating it would abide by the injunction but continue to accept voluntary submissions. The key paragraph:
While this litigation is ongoing, FinCEN will comply with the order issued by the U.S. District Court for the Eastern District of Texas for as long as it remains in effect. Therefore, reporting companies are not currently required to file their beneficial ownership information with FinCEN and will not be subject to liability if they fail to do so while the preliminary injunction remains in effect. Nevertheless, reporting companies may continue to voluntarily submit beneficial ownership information reports.
Legislative Relief
As S-Corp readers know, we have been pressing Congress to delay the filing deadline to 1) give business owners more time to learn about the new law (many still don’t know it exists) and 2) give the courts time to review the law and make a final determination whether it’s constitutional. Spoiler Alert: It’s not.
Word from the Hill is a one-year delay is under consideration and has a chance to catch a ride on the year-end spending bill. This would be a massively helpful development as, noted above, only about one-in-four covered businesses (9 million) have filed to date. That’s a lot of felons.
Bottom Line: This country survived for 250 years without a CTA. It can survive a few months more.