On December 2, 2024 a Federal judge in Texas issued a temporary restraining order (TRO) suspending enforcement of the Corporate Transparency Act (CTA). This meant that businesses would not be required to submit the Beneficial Ownership Information Report (BOI) so long as the TRO was in place.

The purpose of the injunction was to put the report in abeyance until courts could determine its constitutionality.

Two weeks later, on December 23, acting on an appeal by the U.S. Department of Justice, a three-judge panel from the Fifth Circuit Court of Appeals lifted the TRO. The effect of this change was to immediately reinstate the BOI Report.

Later in the day, FINCEN (the Treasury Deparment's enforcement arm for the CTA) modified the filing deadline, which was originally January 1, 2025. FINCEN set a new deadline of January 13, 2025 for companies formed prior to January 1, 2024.

In lifting the TRO, the panel provided for their ruling to receive expedited review by the full Fifth Circuit Court of Appeals. Three days later, on December 26, another Fifth Circuit panel (technically known as a "merits panel") convened to consider the positions taken by both the Government and the plaintiffs. This panel reversed the ruling from December 23 and reinstated the restraining order.

Thus, the BOI report was only reinstated for three days. At the moment, no enforcement of the CTA filing requirements is permitted.

This order will remain in effect until the full Court conducts its hearing on whether to continue the TRO until Federal courts have had an opportunity to review the constitutionality question. Opening briefs for the full Appeals Court are scheduled for February 7, 2025 and oral arguments before the Court are slated for March 25.

In the meanwhile, the Government has appealed to the Supreme Court to overturn the Appeals Court ruling on the restraining order. As of this posting, we have no indication as to whether or when the Supreme Court will ahear the appeal.

What This Means for Small Businesses

For the time being, companies who have not filed a Beneficial Ownership Information Report are under no legal obligation to do so. Businesses can, however, file voluntarily. We are thus continuing to process filings for clients choosing to file.

If the Supreme Court removes the nationwide restraining order, either FINCEN or the Court will need to set a new filing deadline. There are strong reasons to believe that the filing period may be extended to January 1, 2026.

On the other hand, if the Supreme Court decides to forego involvement at this point, the restraining order will remain in effect until at least late March. That's when the full Fifth Circuit Court is to conduct an en banc hearing (a hearing before the full Court) to determine whether to retain the restraining order while the District Court finalizes a decision on the CTA's constitutionality.

If the Court of Appeals decides in March to continue the restraining order, filing requirements for the BOI report will remain in abeyance while the constitutionality issue is adjudicated in the District Court. Whatever the District Court decides, another round of appeals is certain. And since the primary question centers on constitutionality, the entire matter will no doubt end up before the Supreme Court.

While all of these questions are hammered out in Federal courts, businesses may or may not be required to file, dependent on the most recent court ruling. Even if lower courts find the law unconstitutional, there are strong precedents for leaving a law in effect while the issue of its constitutionality wends its way through the judicial system. For the foreeseeable future, therefore, businesses need to be prepared at a moment's notice to gather the information required in the Beneficial Ownership Information Report.

Analysis of Court Rulings

It's important to note that neither the District Court nor the Appeals Court ruled on whether the CTA is constitutional. Their decision was a very narrow one, namely, whether or not to permit the temporary restraining order to remain in place. The question of constitutionality is still a matter under judicial review.

The goal of the plaintiffs in this case is to keep the restraining order in effect until the constitutionality issue is settled. Should the Fifth Circuit lift the restraining order again, the plaintiffs will appeal to the Supreme Court.

There is no assurance, of course, that the Supreme Court will take up an appeal from either side. Even it does, the only thing to appeal at this point is the decision on the restraining order, as there is no ruling to this point on the fundamental constitutional issue.

The Net Effect of The Fifth Circuit's Ruling

For the time being, businesses and beneficial owners have no filing obligation. That would change immediately if the restraining order is set aside once more. In the event that the Government prevails before the full Fifth Circuit, a new filing deadline will doubtlessly be set. Filing requirements, however, will revert to those in effect prior to the restraining order, because nothing in these court proceedings alters the Corporate Transparency Act regulations. The only concern in the current sequence of appeals is enforceability.

Businesses and beneficial owners should anticipate that the Beneficial Ownership Information Report will continue in litigation for months, if not years. The future of the CTA could also be dictated by the new Administration, which takes office January 20 and has spoken repeatedly about reducing regulations on business.

Possible Congressional Action

Congress certainly has the Corporate Transparency Act on its radar. The last week of the 2024 Congressional session was dominated by debates about a Continuing Resolution (CR) to fund the Government until spring. The CR which was initially considered called for extending the BOI filing deadline to January 1, 2026.

However, in the give-and-take over the CR, this provision was dropped and was not included in the final CR which passed the House and Senate. Whether the new Congress will take up the CTA is yet to be seen.

Longer term, it's feasible that the new Administration, intent on downsizing the Federal government, could move to revoke the Corporate Transparency Act. Revocation, however, cannot occur through executive action. Congressional legislation is required. Yet, with so many major legislative initiatives already on the Congressional agenda, any reconsideration of the CTA will hardly have priority early in the year.