UPDATE – FinCEN Grants Modest CTA Reporting Exemption

UPDATE – FinCEN Grants Modest CTA Reporting Exemption

On December 23, the United States Court of Appeals for the Fifth Circuit issued an order staying the preliminary injunction imposed by the U.S. District Court for the Eastern District of Texas.

Last evening, FinCEN issued a modest deadline extension, in recognition that “ reporting companies may need additional time to comply given the period when the preliminary injunction” was in effect:

• Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)
• Reporting companies created or registered in the United States on or after September 4, 2024 that had a filing deadline between December 3, 2024 and December 23, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN.
• Reporting companies created or registered in the United States on or after December 3, 2024 and on or before December 23, 2024 have an additional 21 days from their original filing deadline to file their initial beneficial ownership information reports with FinCEN.
• Reporting companies that qualify for disaster relief may have extended deadlines that fall beyond January 13, 2025. These companies should abide by whichever deadline falls later.
• Reporting companies that are created or registered in the United States on or after January 1, 2025 have 30 days to file their initial beneficial ownership information reports with FinCEN after receiving actual or public notice that their creation or registration is effective.

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction against enforcement of the Corporate Transparency Act (“CTA”), including a stay of the CTA’s Beneficial Ownership Information Reporting Rule (“BOI Rule”).¹

Subject to 23 exemptions, the BOI Rule requires legal entities formed or registered to do business in the United States to report beneficial ownership information to a national database maintained by the Financial Crimes Enforcement Network (“FinCEN”) within the U.S. Department of the Treasury.

The BOI Rule took effect January 1, 2024, and its implementation was bifurcated:

• Entities formed or first registered during 2024 have been required to file initial reports within 90 days of notice of formation or registration.
• Entities that were formed or first registered prior to 2024 would be required to file their initial reports by January 1, 2025.

While the situation continues to develop, the preliminary injunction will have significant implications, particularly given the rapidly approaching January 1 initial reporting deadline for entities formed or registered prior to 2024.

1. Is the CTA dead?

No. The District Court issued a preliminary injunction, which temporarily prohibits FinCEN from enforcing the CTA and BOI Rule pending final resolution of the lawsuit challenging the CTA’s constitutionality.

2. What will happen if the injunction is lifted?

If the injunction is lifted, either by the District Court or on appeal, enforcement of the CTA could resume. Absent relief from FinCEN or the courts, the original reporting deadlines would be reinstated at that point.

Since January 1, 2024, FinCEN has issued multiple, six-month extensions to legal entities whose principal places of business were located in areas affected by natural disasters. Notably, with only one exception, these extensions did not provide relief for legal entities formed prior to 2024 (leaving the original January 1, 2025 deadline in place).

In the event the injunction is lifted, one possibility is that FinCEN may grant more limited relief—for example, an extension spanning the period of time that the injunction remains in place. The practical effect of this step would be to “freeze” the time remaining until the reporting deadline, as it existed immediately prior to issuance of the injunction.

The District Court’s order reflects its own expectation that final resolution on the merits of the challenge will take some time (well past the January 1 deadline). Thus, the prospect of any prompt change to the District Court’s injunction would depend on the government seeking expedited relief at the Fifth Circuit Court of Appeals to stay the injunction.

3. How should we proceed?

While the injunction remains in place, we believe it would be reasonable for reporting companies to pause submitting new filings to the FinCEN database, given that the injunction imposes a nationwide prohibition against enforcement of the BOI Rule.

If the injunction is lifted, enforcement of the CTA could resume, subject to any relief granted by FinCEN or from the courts in unwinding the injunction. While we think it is quite likely that either the courts or FinCEN will grant some time relief to filing parties—and that is especially true in the event the injunction remains in place through January 1, 2025—it is too early to know if such relief would be granted (or for how long).

Reporting companies of course remain free to continue preparing filings, without submitting them, to be in a position to comply if the injunction is lifted.

We will continue to monitor for updated developments in response to this injunction.