The fight over the Corporate Transparency Act drags on as the Financial Crimes Enforcement Network further postpones reporting requirements. PLDO Attorney Javellys Polanco provides the latest update for businesses below:
The Corporate Transparency Act, 31 U.S.C. § 5336, (the “CTA”) and its accompanying Reporting Rule, 31 C.F.R. § 1010.380, was enacted in an effort to curb illicit financing, such as money-laundering, terrorism financing, and tax fraud. However, entities are taking issue with the mandatory reporting requirements, which obligate all non-exempt entities to disclose certain private information about their beneficial owners (“Beneficial Ownership Information” or “BOI”).
In Texas Top Cop Shop, Inc. v. McHenry, Plaintiffs brought suit in the United States District Court for the Eastern District of Texas challenging the constitutionality of the CTA. Among the plaintiffs are three entities and an organization that represents approximately 300,000 independent business owners. In their complaint, Plaintiffs first assert, among other things, that the CTA exceeds Congress’s authority over the States in violation of the Ninth and Tenth amendments. Next, they assert that the CTA violates the First Amendment by compelling speech and burdening the right of anonymous association. Further, they assert that the CTA violates the Fourth Amendment by compelling disclosure of private information.
In response to the Plaintiffs’ Motion for Preliminary Injunction on the matter, on December 3, 2024, the court granted a nationwide injunction against the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) enjoining them from enforcing the CTA and its Reporting Rule in light of its then-impending reporting deadline of January 1, 2025. On appeal, the Fifth Circuit Court of Appeals reversed the injunction, and then reversed that reversal. Most recently, on January 23, 2025, the Supreme Court granted a temporary stay of the nationwide injunction pending the results of the government’s appeal to the Fifth Circuit Court of Appeals. The case will be heard on March 25, 2025.
In the meantime, in a separate case in the United States District Court for the Eastern District of Texas, Smith, et al. v. U.S. Department of the Treasury, et al., that court granted a preliminary injunction, enjoining the enforcement of the CTA against the named plaintiffs and staying the effective date of the Reporting Rule. Like in Texas Top Cop Shop, Plaintiffs object to the requirement to disclose sensitive personal information and contend that the CTA exceeds its authority under Article 1 of the Constitution. FinCEN has since appealed this order.
FinCEN’s response to these challenges has been to temporarily pause the enforcement of the CTA, pending the outcome of their appeal in Smith, et al. v. U.S. Department of the Treasury. They have further indicated their intention to provide a 30-day grace period if they succeed in their request to stay the order against the implementation of the Reporting Rule. This would give businesses only 30 days from the date of the granting of such stay to come into compliance.
As this legal battle continues to unfold in the coming weeks, stay tuned for further updates on potential changes to the BOI reporting requirements.
