KingSpry Business Law Attorney, Taisha K. Tolliver-Duran, Esq., has kept abreast of the litigation impacting the Corporate Transparency Act, and details what businesses must know to remain compliant as the Act is challenged in Federal Court.
The Corporate Transparency Act (the “CTA”) is a federal law that imposes filing requirements on nearly every corporation, limited liability company, or similar business entities formed in or registered to do business in the United States. Under the CTA, beneficial ownership information (“BOI”) must be reported to the United States Department of Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Additionally, the CTA imposes severe penalties for failure to comply with reporting obligations.
BOI reports must be filed by domestic and foreign reporting companies (“reporting companies”).
Domestic reporting companies are any corporation, limited liability company, or entity created by the filing of a document with a secretary of state (or similar office).
Foreign reporting companies are any corporation, limited liability company, or entity formed under the law of a foreign country AND registered to do business in the United States or tribal jurisdiction by the filing of a document with a secretary of state (or similar office).
Supreme Court of the United States
On January 23, 2025, the Supreme Court of the United States (“SCOTUS”) granted the Federal Government’s application to stay the injunction of the CTA. In effect, this temporarily suspends the nationwide preliminary injunction of the CTA imposed by the United States District Court for the Eastern District of Texas in McHenry v. Texas Top Cop Shop, Inc. (“McHenry”). SCOTUS’ decision is only temporary, pending the result of FinCEN’s current appeal before the United States Court of Appeals for the Fifth Circuit.
Following this decision, it appeared that the CTA may be back in effect. However, SCOTUS’ ruling relates only to the injunction created under McHenry and does not prevent and/or lift other injunctions related to the CTA.
Federal Texas Court
On January 7, 2025, a different federal judge of the United States District Court for the Eastern District of Texas imposed a separate nationwide injunction in Smith v. United States Dep’t of the Treasury (“Smith”). Despite SCOTUS’ decision in McHenry, this nationwide order staying (i.e., stopping or suspending) the effective date of the CTA remains in place. If the Federal Government appeals this decision, it will also go to the United States Court of Appeals for the Fifth Circuit.
Impact on Reporting Companies
Based upon the ruling in Smith, reporting companies are not required to file BOI with FinCEN. FinCEN has also indicated that reporting companies are not subject to liability if they fail to file BOI as long as the Smith order remains in place. However, reporting companies may continue to voluntarily submit BOI reports to FinCEN.
Moving Forward
While reporting companies are not currently required to file BOI with FinCEN, businesses should be proactive in (1) determining whether they are a reporting company under the CTA, and if so, (2) identifying beneficiary owners and company applicants to ensure that all BOI is reported to FinCEN if the CTA’s filing deadlines are reinstated.
Additionally, as these lawsuits continue to progress and cause uncertainty, reporting companies may find it desirable to voluntarily submit BOI to with FinCEN.
KingSpry’s Business Law Team will continue to monitor developments in this case and is prepared to assist your business in navigating the impact of the Corporate Transparency Act. Should you or your business have questions or concerns, contact KingSpry’s Business Law Team. This article is meant to be informational and does not constitute legal advice.
