IMPORTANT CLIENT REAL ESTATE AND BUSINESS LAW ALERT:
CTA CURRENTLY STAYED – APPEALS COURT REVERSES PRIOR DECISION AND REINSTATES NATIONWIDE STAY
RESTRICTING ENFORCEMENT OF THE CORPORATE TRANSPARENCY ACT
Updated December 30, 2024
James T. Walther, Esq., LL.M.
General Counsel
This Alert is an update to our prior articles on the Corporate Transparency Act, linked below.
There has been back and forth due to pending litigation regarding the enforceability of the Corporate Transparency Act (CTA). As of December 27, 2024, enforcement of BOI reporting under the CTA is currently on hold.
Per FinCEN’s website: https://fincen.gov/boi
“In light of a recent federal court order, 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.
However, reporting companies may continue to voluntarily submit beneficial ownership information reports.
…
On December 26, 2024, however, a different panel of the U.S. Court of Appeals for the Fifth Circuit issued an order vacating the Court’s December 23, 2024 order granting a stay of the preliminary injunction.
Accordingly, as of December 26, 2024, the injunction issued by the district court in Texas Top Cop Shop, Inc. v. Garland is in effect and reporting companies are not currently required to file beneficial ownership information with FinCEN.”
History:
The BOI reporting requirements per the CTA have posed a significant burden on businesses of all sizes and their advisors.
In December, the U.S. Court of Appeals for the Fifth Circuit, in Texas, issued a memorandum opinion and order enjoining the application of the Corporate Transparency Act (“CTA”) on a nationwide scale. This ruling temporarily prevents the Financial Crimes Enforcement Network (“FinCEN”) from enforcing reporting requirements seeking Beneficial Ownership Information (“BOI”) for business entities under the CTA.[i] The injunction, issued on December 3, 2024, in Texas Top Cop Shop, Inc. v. Garland, No. 4:24-CV-478 (E.D. Texas), temporarily halted enforcement of the CTA and BOI reporting requirements. It was lifted after the Fifth Circuit Court of Appeals granted the DOJ’s motion to reverse the lower court’s decision on December 23rd. It is back in effect as of December 27, 2024 due to a second Court ruling in the same week that reinstated the original injunction.
The nationwide stay on enforcement of the CTA is once again in force. For detailed information on FinCEN’s updated requirements, please visit the government website, linked here.
For additional insights on reporting requirements and the history of litigation, refer to our previous articles.
- Corporate Transparency Act, Nationwide Stay Issued by Federal Court
- A Primer on New Business Disclosure Laws: The Corporate Transparency Act and New York LLC Transparency Act and how they affect 1031 Exchanges
Legislative Action:
- Despite recent discussions in Congress about potential amendments to the CTA, and the incoming administration’s disapproval of the CTA, no legislative action is expected before year-end. While in office, Donald Trump originally vetoed the CTA in 2020, but it was overridden by Congress, and it passed into law as part of the National Defense Authorization Act of 2021.
This update builds on prior Legal 1031 alerts discussing the administrative burdens and legal challenges associated with the CTA. We have continuously emphasized the importance of compliance to avoid penalties, which include fines of up to $10,000 and imprisonment for up to two years.
Legal 1031 encourages all clients and business partners to review their compliance requirements under the CTA on an entity-by-entity basis and ensure timely filing of BOI reports. As the deadlines have now been adjusted, businesses should take immediate steps to align with the updated schedule, if they have not already complied BOI filing requirements.
Legal 1031 will continue to monitor these developments and provide timely updates. Please note that Legal 1031 Exchange Services, LLC is not affiliated with the IRS or the U.S. Government, and all information contained herein is based on public reports and FinCEN guidance.
[i] See 31 U.S.C. 5336 and the corresponding Regulations (31 CFR 1010.380 “Reports of Beneficial Ownership”).
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