Fifth Circuit Lifts the Nationwide Injunction on the Corporate Transparency Act BOI Reporting Requirements – FinCEN Extends Filing Deadline

12.26.2024

On December 23, 2024, with the looming January 1, 2025, filing deadline just days away, the Fifth Circuit Court of Appeals lifted a nationwide injunction which had temporarily prohibited the enforcement of the Corporate Transparency Act (CTA) and its implementing regulations (including the mandatory beneficial ownership information (BOI) reporting rule).

Now, while much of the country is busy with holiday festivities and end-of-year preparations, Reporting Companies that have not previously filed their BOI reports must scramble to comply with the newly reinstated deadline. Following the ruling, the Financial Crimes Enforcement Network (FinCEN) issued an alert notifying Reporting Companies that the BOI reporting requirement has been reinstated. However, for Reporting Companies formed prior to 2024, FinCEN extended the deadline to file BOI reports until January 13, 2025. (Additional deadline information can be found here.)

Recent legal challenges to the constitutionality of the CTA had temporarily suspended enforcement of the CTA, leaving Reporting Companies without clear guidance on whether they would be required to comply with the CTA’s BOI reporting rule as the January 1, 2025, deadline drew near.

Throughout 2024, courts across the Nation have heard legal challenges to the constitutionality of the CTA, coming to differing conclusions. For example, federal district courts in Virginia and Oregon held that the CTA is constitutional, while an Alabama district court in National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala. Mar. 1, 2024), held that the CTA is unconstitutional and issued a ruling applicable only to the specific plaintiffs in that case.

On December 3, 2024, the U.S. District Court for the Eastern District of Texas in Texas Top Cop Shop, Inc. vs. Garland, No. 4:24-CV-478 (E.D. Tex. 12/3/24), issued a preliminary injunction which prohibited the enforcement of the CTA and its implementing regulations (including the BOI reporting rule) finding that the CTA and its implementing regulations are likely unconstitutional.

However, despite the fact that the injunction was put in place by the District Court to protect businesses from being forced to comply with potentially unconstitutional and highly invasive reporting requirements until the Court could issue a final ruling on the CTA’s constitutionality, the December 23 ruling by a three-judge panel of the Fifth Circuit removed the injunction’s protection while not issuing a final determination on the constitutionality of the CTA. However, the three-judge panel of the Fifth Circuit did find that “the government has made a strong showing that it is likely to succeed on the merits in defending CTA’s constitutionality.”

Key Developments

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction barring enforcement of the CTA and BOI reporting requirements. Subsequently, on December 5, 2024, the Department of Justice (DOJ) filed an appeal of the court’s order in the Fifth Circuit Court of Appeal. The DOJ had requested a hearing date of December 27, 2024, in advance of the looming January 1, 2025, BOI reporting deadline for Reporting Companies formed prior in 2023 or earlier. The Fifth Circuit obliged the DOJ’s request, not only hearing the matter, but also lifting the injunction on December 23, 2024.

By lifting the injunction, the order by the Fifth Circuit reinstated the BOI reporting rule’s enforceability just days before the January 1, 2025, BOI filing deadline, giving Reporting Companies very little time to timely file their BOI reports. This situation is further exacerbated by the fact that many small and medium-sized businesses close down or otherwise pause operations during the week between Christmas and New Year’s Day, making compliance particularly onerous. Potentially anticipating compliance issues, FinCEN extended the January deadline by nearly two weeks, to January 13, 2025.

Recommended Action

Despite the fact the injunction has been lifted, the Fifth Circuit has yet to rule on the underlying issue of the CTA’s constitutionality. That said, regardless of whether the CTA is ultimately held to be unconstitutional, by lifting the injunction the court is forcing Reporting Companies to file BOI reports while the judicial process unfolds.

Reporting Companies should take note that failure to timely file a BOI report can result in significant penalties (including civil and criminal penalties), so it is critical that Reporting Companies satisfy their reporting obligations under the CTA.

Please refer to our December 29, 2023 Client Alert that includes a detailed explanation of the CTA BOI Report requirements, here.

As always, the attorneys in AALRR’s Corporate, Business, and Tax practice are here to help with guidance and expertise to support you and your business as you navigate the changing legal landscape surrounding the Corporate Transparency Act.