Uncertainty Surrounds the CTA Reporting Deadline
This week, a U.S. district court issued a preliminary injunction in Texas Top Cop Shop, Inc. v. Garland preventing the government from enforcing the Corporate Transparency Act (“CTA”)[1] nationwide.[2] The order specifically provides that reporting companies need not comply with the CTA’s January 1, 2025, reporting deadline[3] pending further order of the Court.
It is unclear whether the injunction will still be in effect by the reporting deadline, because the government is likely to appeal it. While there are only a few weeks left before year-end, the injunction could be lifted, resulting in the original year-end deadline being enforced.
As a result, filing CTA reports by year-end (or being 100% ready to) remains the most advisable approach to dealing with these uncertainties until a more definitive decision is made by the courts. This means filing beneficial ownership reports with the Financial Crimes Enforcement Network (“FinCEN”) by January 1, 2025, for all reporting entities created prior to January 1, 2024.
For entities formed this year, the deadline is 90-days from the date of formation, and thus could fall during the injunction. If the injunction is lifted, these reports could be due immediately. For that reason, it is likewise advisable to file reports in accordance with the original deadline or have the report ready to file at a moment’s notice. During 2025, a 30-day filing deadline will apply to newly-formed reporting entities, and that requirement has also been called into question by the present litigation.
Throughout this year, we have sent several alerts concerning the CTA, which took effect January 1, 2024 and generally requires a variety of business entities to file a report with FinCEN disclosing their respective beneficial owners and company applicant information. In these previous alerts, we noted there were a number of legal challenges to the CTA making their way through courts around the country which could ultimately result in these reporting obligations being altered, delayed, or even nullified entirely. For example, the court enjoining the CTA directly referenced the ongoing NSBU v. Yellen case in which the Court of Appeals for the Eleventh Circuit is currently considering the constitutionality of the CTA.[4] However, it appeared unlikely to be resolved prior to the end-of-year CTA filing deadline, and, while the recent injunction brings hope, it does not bring clarity.
The penalty for failure to file a report in compliance with the CTA is $500 per day up to $10,000, and there are also heavy criminal penalties.[5] Therefore, our continued advice to clients is to comply with the CTA’s stated deadlines for the present.
For more information concerning this Alert, please contact the Caplin & Drysdale attorneys below.
