Law’s Rollout Has Become Increasingly Complex Due to Court Decisions
The Corporate Transparency Act (CTA), designed to combat financial crimes through mandatory business ownership reporting, faces significant legal challenges that have suspended its implementation. The Act would require businesses to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), potentially affecting an estimated 32.6 million companies and over 90 million individuals nationwide.
Initially, the CTA required filings for all corporations starting January 1, 2025
Agency Checklists reported that the CTA would take effect for newly formed corporations on January 1, 2024, and for all other corporations on January 1, 2025. See Agency Checklists’ December 4, 2023, article, “New Reporting Requirement for Small Businesses Begins January 1, 2024.” However, since Agency Checklists published its article advising of the CTA’s starting date, the law’s rollout has become increasingly complex due to court decisions.
Federal Appeals Court lifts injunction against the CTA taking effect, then reinstates it three days later
On December 3, 2024, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction blocking enforcement of the Corporate Transparency Act (CTA) after finding that Congress likely exceeded its authority under the Commerce Clause and Necessary and Proper Clause when passing the CTA. In his ruling, the judge noted that the [“U.S. Constitution’s] Commerce Clause does not justify regulating all companies based on nothing more than a fear that a reporting company might shelter a financial criminal” (Emphasis in original).
On December 23, 2024, a Fifth Circuit panel lifted a Texas judge’s nationwide injunction, briefly allowing the law to proceed. However, just three days later, a different panel from the same court reinstated the injunction “to preserve the constitutional status quo.” In response, the Department of Justice has petitioned the Supreme Court to intervene, requesting either a complete lifting of the injunction or limiting its scope to only the plaintiffs involved. The Supreme Court has asked for responses to this petition by January 10, 2025.
What the CTA requires
If implemented, the CTA would require companies to file Beneficial Ownership Information Reports (BOIRs) with FinCEN. These reports must include detailed information about beneficial owners – individuals who own 25% or more of the company or exercise substantial control. Required information includes legal names, birth dates, addresses, government-issued identification numbers, and supporting documentation.
Businesses are advised to be ready to file if CTA is upheld
While businesses are not currently required to file reports due to the injunction, they may do so voluntarily. Legal experts suggest companies prepare their information in advance, as a court ruling could reinstate the filing requirement on short notice. The actual filing process could take as little as 15 minutes for most filings when properly prepared.
Severe penalties for noncompliance with the CTA
The stakes for noncompliance will be significant once the law takes effect. Penalties include civil fines of up to $500 per day and potential criminal penalties of up to $10,000 and/or imprisonment. The Fifth Circuit has scheduled arguments on March 25, 2025, unless the Supreme Court intervenes sooner.
Businesses should monitor these developments closely and prepare necessary documentation while awaiting final legal resolution. For updated information and filing guidance, visit FinCEN’s dedicated portal at www.fincen.gov/boi.
Agency Checklists will continue to update as this significant legal challenge progresses through the courts.
Owen Gallagher
Insurance Coverage Legal Expert/Co-Founder & Publisher of Agency Checklists
Over the course of my legal career, I have argued a number of cases in the Massachusetts Supreme Judicial Court as well as helped agents, insurance companies, and lawmakers alike with the complexities and idiosyncrasies of insurance law in the Commonwealth.
Connect with me directly, by calling me at 617-598-3801.
