CTA and BOI filing uncertainty continues

The saga of the Corporate Transparency Act and its beneficial ownership information reporting requirement goes on.

When the District Court for the Northern District of Alabama ruled that the CTA was unconstitutional on March 1, 2024, it specified that the ruling only applied to the 65,000 members of the plaintiff organization, the National Small Business Association. 

But on Dec. 3, another court, the District Court for the Eastern District of Texas, granted a nationwide preliminary injunction prohibiting the federal government from enforcing the CTA and its reporting rule entirely. The injunction, ruled the court, applies against enforcement of the CTA and its Jan. 1, 2025 filing deadline. The Department of Justice appealed the injunction two days later, on Dec. 5, 2024.

Beginning Jan. 1, 2024, the CTA imposed a requirement to file beneficial ownership information with the Treasury’s Financial Crimes Enforcement Network, or FinCEN. Existing companies were required to file within the year 2024, while a new company started during 2024 would have 30 days (temporarily extended to 90 days for 2024 only) to file. An estimated 32.6 million filings were expected during 2024, with five to six million expected each following year. The penalty for failure to comply is $500, with a cap of $10,000. 

A beneficial owner is one who directly or indirectly exercises substantial control over the reporting entity, or who directly or indirectly owns or controls 25% or more of the ownership interests of the reporting entity.

“We always thought that a delay was necessary in the filing requirement,” said Roger Harris, president of Padgett Business Services. “That’s because of issues with the 30-day rule and lack of guidance on substantial ownership.”

“We’re telling our people to continue to gather the information necessary to file the report, but to inform clients of where we are regarding the court injunction,” he continued. “We will wait until we get further information from FinCEN and DOJ before we file a report unless the client tells us to go ahead and file. What I hope we hear is that FinCEN believes it will take too long to resolve all the court cases and the outstanding issues about how the current program is being implemented, and will extend the deadline for one year to Jan. 12, 2026.”

“The problem with the order is that it doesn’t talk about any remedies about what will happen once the injunction is lifted or an appellate court says it was wrongly decided,” said attorney Michael Chua. “It doesn’t say that the deadline is automatically extended for one year if the injunction disappears. Technically speaking, those deadlines are still effective. That’s the biggest concern at this point, since it doesn’t provide any remedies — it’s kind of a head-scratcher.”

As of right now, there is no obligation or duty to file, observed Earl Melamed, a partner and head of the CTA Working Group at law firm Neal, Gerber & Eisenberg. 

But the penalties are onerous and are likely to catch people unaware, he said, so companies may not want to ignore the requirement entirely. 

“We suggest that our clients can pause from any filing that they otherwise might make, but that they should continue to assemble the information so that they are ready to file,” said Melamed. “The requirement can be reimposed at any date — the Texas district court did not decide that the CTA was unconstitutional, they merely said that it was ‘likely’ to be found to be unconstitutional. The appellate court could lift the injunction but say that the deadlines are extended for a year; they could provide more time to file but they don’t have to.” 

Melamed believes the DOJ will fight very hard to have the injunction lifted. But given the fact there are a number of cases before different courts around the country seeking to overturn the CTA on constitutional grounds, the question may eventually go before the Supreme Court.  

“If there are two conflicting rulings, that’s the ticket to the Supreme Court,” he said.