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Business Law Today

January 2025

How FinCEN Stole Christmas: The Corporate Transparency Act, Year 1

Christina Houston, Robert R Keatinge, Thomas E. Rutledge, and James J Wheaton

Summary

  • This article describes all three levels of federal courts (District, Circuit, and Supreme), Congress and a bureau of the U. S. Department of Treasury frantically sought to determine the future and timing of CTA reporting obligations, and how these events will shape future developments of the CTA.
  • The CTA has been under attack from many small businesses and small business associations as being unconstitutional either as an enactment beyond the power of Congress or an invasion of the constitutional rights of small businesses and their owners.
  • The CTA has been adopted to satisfy an international consortium of law enforcement officials, most of whom operate under national legal systems that already require much more transparency of organizations than does the United States, particularly considering the strongly state-centric regulations of organizations.
  • Over the four years that FinCEN has had to implement has declined to address many issues that have troubled those attempting to comply with the CTA—or, when addressing the issues, it has provided unworkable answers.
How FinCEN Stole Christmas: The Corporate Transparency Act, Year 1
iStock.com/tarabird

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As of January 14, 2025 all information-filing requirements mandated by the Corporate Transparency Act (“CTA”) are suspended. If, when, and the extent to which this suspension will end is currently being considered by the United States Supreme Court and U.S. Court of Appeals for the Fifth Circuit. This article considers how what might have been anticipated to be a peaceful year-end holiday season saw all three levels of federal courts (District, Circuit, and Supreme), Congress and a bureau of the U. S. Department of Treasury frantically seeking to determine the future and timing of CTA reporting obligations, and how these events might shape future developments of the CTA.

On December 3, 2024, in Texas Top Cop Shop, Inc. v. Garland (“Top Cop District Litigation”) brought by businesses and an individual owner (“plaintiffs” or “plaintiffs-appellees”) against the Financial Crimes Enforcement Network (“FinCEN”), the bureau of the United States Department of the Treasury that administers the CTA; the United States Attorney General; and the Secretary of the Treasury (the “government”), the court issued a nationwide preliminary injunction enjoining the CTA. In response to the preliminary injunction, on December 23, 2024, FinCEN gave notice it would not enforce the CTA for so long as the injunction were in place.

In response to the preliminary injunction, on December 5, 2024 the government filed a notice of appeal to the U.S. Court of Appeals for the Fifth Circuit (“Top Cop Fifth Circuit Litigation”) and, on December 11, 2024, a Motion to Stay Preliminary Injunction Pending Appeal in the Top Cop District Litigation. On December 12, 2024, the District court judge ordered the plaintiffs to respond to the government’s motion by December 16, 2024, and on December 16, the plaintiffs filed a response, followed by a government reply the next day. On the December 17, the District Court judge denied the government’s motion.

On December 9, the Notice of Appeal that the government had filed with the Fifth Circuit was docketed (Top Cop Fifth Circuit Litigation). On December 13, the government filed a Motion for a stay of the preliminary injunction pending appeal, and a Fifth Circuit motion panel requested that the plaintiffs-appellees file a response by December 17, and the government file a reply by December 19. On December 17, the plaintiffs-appellees filed a Response/Opposition, and the government filed a Reply on December 19. On December 23, the motions panel in an Unpublished Order granted the government’s motion for stay of the preliminary injunction pending appeal, and did not extend the due date for CTA filings. Shortly after the release of the Unpublished Order, FinCEN issued a BOI Alert (December 23, 2024) extending the filing dates for information reporting to January 13, 2025 or later. On December 24, the plaintiffs-appellees filed a motion for rehearing en banc, in response to which the court issued a Court Directive that a Response/Opposition to the motion for rehearing should be filed by December 31.

The lifting of the preliminary injunction was short-lived. On December 26, 2024, a merits panel of the Fifth Circuit vacated the stay portion of the order of the motions panel, effectively reinstating the preliminary injunction. The merits panel established a briefing schedule (concluding on February 28, 2025) and oral arguments (on March 25, 2025) for a determination of the government’s motion to stay the preliminary injunction. The plaintiffs-appellees’ motion for en banc hearing was dismissed as moot.

Continuing the flurry of holiday season activity, on December 31, 2024, while the government’s motion for a stay of the preliminary injunction was still pending before the Fifth Circuit, the Solicitor General, on behalf of the government, commenced an action in the United States Supreme Court (the Top Cop Supreme Court Litigation) by filing an Application for a Stay of the Injunction Issued By the United States District Court for the Eastern District of Texas (“Supreme Court Application for Stay”). The Supreme Court Application for Stay argues:

(a) the district court gave insufficient deference to the presumed validity of laws enacted by Congress;

(b) that the CTA is within Congress’ authority under the Commerce Clause;

(c) that the Constitutional Necessary and Proper Clause supports Congress’ authority to adopt the CTA;

(d) established law supports that laws may require that persons provide requested information;

(e) the plaintiffs have not satisfied the high standards required for a facial challenge to the constitutionality of a statute;

(f) the equities support lifting the stay in that the district court failed to account for the harm to the Government in not allowing the CTA to be enforced as a tool for addressing identified problems such as domestic and international money-laundering and tax evasion (Petition pp. 26-30);

(g) that the merits panel of the Fifth Circuit did not apply the correct standards in lifting the stay of the injunction; and

(h) the district court’s nationwide injunction is unwarranted.

The Supreme Court Application for Stay also invited the Supreme Court to grant certiorari to consider the proper standard for the issuance of a nationwide injunction. As to the nationwide reach of the preliminary injunction, the Supreme Court Application for Stay at p. 4 argues:

At a minimum, this Court should narrow the district courts vastly overbroad injunction. A court of equity may grant relief only to the parties before it. The district court violated that principle by issuing a universal injunction purporting to enjoin the Act itself and forbidding the enforcement of the Act even against non-parties. Several Members of this Court have recognized that such universal relief contradicts Article III and established equitable principles and have urged clarification of these principles in an appropriate case — but the Courts antecedent determination on a threshold procedural issue or the merits in prior cases has obviated the need to re-solve the remedial question. Because the lower courts need guidance on the propriety of universal injunctions, this Court may additionally wish to treat this application as a petition for a writ of certiorari before judgment presenting the question whether the district court erred in entering preliminary relief on a universal basis.

The Supreme Court Application for Stay was assigned initially Justice Alito, and on January 3 he issued instructions to the plaintiffs-appellees to respond not later than 4:00 pm on Friday, January 10, 2025. The Supreme Court Application for Stay was assigned initially Justice Alito, and on January 3 he issued instructions to the plaintiffs-appellees to respond not later than 4:00 pm on Friday, January 10, 2025. That Response Brief was filed well before the deadline, and on January 13 the Government filed a Reply Brief.

Thus, the current enforceability and ultimate validity is currently before three federal courts, none of which has reached a final judgment of constitutionality of the statute. After a month of legal contention, the preliminary injunction issued in the Top Cop District Court Litigation is still in effect although that may change at any time. If the preliminary injunction is lifted, when the information disclosures that would have been filed during the hiatus will be subject to whatever administrative grace FinCEN or the acting court chooses to afford them.

The balance of this article discusses the background of the CTA and its implementing reporting regulations and the machinations they have undergone over the year-end holidays, and how this history may offer a clue to what will happen to the CTA in the future.

The CTA: A Grinch-ish “Gift”

As of December 1, 2024, the CTA as supplemented by final regulations prescribed under it (“Reporting Rule”) require each reporting company created or registered on or after January 1, 2024 (a new entity) to file a beneficial ownership information report (“BOIR”) with the Financial Crimes Enforcement Network (“FinCEN”), the bureau of the U.S. Department of the Treasury that administers the CTA, on or before ninety days after creation or registration if created or registered in 2024 and thirty days after creation or registration if created or registered after 2024.

Under the CTA, the Reporting Rule aims to “minimize burdens on reporting companies associated with the collection of beneficial ownership information, including by eliminating duplicative requirements,” while at the same time aiming to “ensure the beneficial ownership information reported to FinCEN is accurate, complete, and highly useful.” Thus, while there are still many questions about the application of the reporting requirements to reporting companies, FinCEN is actively considering new regulations to make the information it collects more useful to the banking industry.

Nonetheless, the CTA has been riddled with nuanced problems and counterintuitive applications that have been an irritant (not always minor) for even some simple business organizations. For larger, more sophisticated organizations, the CTA (particularly as implemented by the Reporting Rule) can be a cipher for a number of organizations that, without any obvious reason, are subject to the statute, including (i) homeowners associations that may exempt from BOIR reporting depending upon the federal tax exemption for which they qualify, (ii) companies that have separated their employees from the organization in which the company’s value is located, (iii) companies in bankruptcy and subject to the oversight of a Chapter 7 bankruptcy trustee, (iv) companies that have wound up their affairs, (v) limited liability companies (“LLCs”) whose organization was never completed by the admission of a member, (vii) limited liability partnerships, and (viii) companies having multiple classes of ownership. These issues have earned the CTA pride of place as a program that Project 2025 would like to exterminate.

On-Again, Off-Again, On-Again Christmas Celebrations

Top Cop is not the only litigation has been filed challenging the CTA and the Reporting Rule. The CTA has been under attack from many small businesses and small business associations as being unconstitutional either as an enactment beyond the power of Congress or an invasion of the constitutional rights of small businesses and their owners. Numerous cases in which these issues are being considered are currently pending in federal courts around the country.

In one case in the early part of 2024, National Small Business United v. Yellen (“NSBU”), the trial court, a federal district court in Alabama, entered a final declaratory judgment concluding that the CTA exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the CTA against those plaintiffs. FinCEN then issued an alert (“NSBU Alert”) to the effect that FinCEN would not enforce the CTA against the plaintiffs as long as the judgment remains in effect. The government appealed NSBU (although not the injunction separately) to the U.S. Court of Appeals for the Eleventh Circuit; the case is ongoing. In addition, FinCEN extended the filing deadlines for reporting companies located in the areas designated both by the Federal Emergency Management Agency (“FEMA”) as qualifying for individual or public assistance and by the Internal Revenue Service as eligible for tax-filing relief. In all other respects, the Reporting Rule continued to govern the BOIR reporting regime.

Later, in the fall of 2024, two other federal district courts declined to issue an injunction and preliminarily found the CTA constitutional.

At the same time the government was filing its appeal to the Fifth Circuit, Congress was considering a one-year extension on the filing deadline for reporting companies formed or created before January 1, 2024 (“existing entities”) as part of a continuing resolution, but the extension was deleted from the final enactment of the American Relief Act, 2025.

On Christmas Eve, after a hectic preholiday week punctuated by furious activities by all three branches of government, the infelicitous rolling out of the principal aspects of the CTA came to rest with some reporting companies formed after September 3, 2024 being granted by FinCEN an extension of time within which to file their initial BOIRs and the balance of the CTA reporting regime continuing in effect. Based upon BOI Alert (December 23, 2024), the due dates for initial BOIRs were set as follows:

Date of Creation or Registration

Number Days in Which to File Initial BOIR or Update to BOIR or FinCEN Identifier

Due Date for Filing BOIR as of December 23, 2024

From

To

Before 1/1/2024*

At least 379 days

January 13, 2025

1/1/2024

9/3/2024†

90 days

Within 90 days of creation or registration

9/4/2024

9/24/2024‡

Between and 111 and 131 days

January 13, 2024

9/25/2024

12/2/2024§

90 days

Within 90 days of creation or registration

12/3/2024

12/23/2024||

111 days

Within 111 days of creation or registration

12/24/2024

12/31/ 2024#

90 days

Within 90 days of creation or registration

On or after January 1, 2025

30 days

Within 30 days of creation or registration

Change in, or correction to, a filed BOIR

30 days

Within 30 days of change or discovery of inaccurate content
Change in, or correction to, a FinCEN Identifier**

30 days

Within 30 days of change or discovery of inaccurate content

* The CTA provides thus:

In accordance with regulations prescribed by the Secretary of the Treasury, any reporting company that has been formed or registered before the effective date of the regulations prescribed under this subsection shall, in a timely manner, and not later than 2 years after the effective date of the regulations prescribed under this subsection, submit to FinCEN a [BOIR].

31 U.S.C. § 5336(b)(1)(B). This potential two-year period (which would have expired on January 1, 2026) was reduced by the Reporting Rule to one year after the effective date of the Reporting Rule. 31 C.F.R. § 1010.380(a)(1)(iii) (“Any domestic reporting company created before January 1, 2024 and any entity that became a foreign reporting company before January 1, 2024 shall file a report not later than January 1, 2025.”). BOI Alert (December 23, 2024), Alert: Updates to Beneficial Ownership Information Reporting Deadlines—Beneficial Ownership Information Reporting Requirements Now in Effect, with Deadline Extensions, provided,  “Reporting companies that were created or registered prior to January 1, 2024 have until January 13, 2025 to file their initial beneficial ownership information reports with FinCEN. (These companies would otherwise have been required to report by January 1, 2025.)” FinCEN (Dec. 23, 2004).

 The CTA provides that “[i]n accordance with regulations prescribed by the Secretary of the Treasury, any reporting company that has been formed or registered after the effective date of the regulations promulgated under this subsection shall, at the time of formation or registration, submit to FinCEN a [BOIR].” 31 U.S.C. § 5336(b)(1)(C).

 Reporting companies created or registered in the United States on or after September 4, 2024, that had a filing deadline between December 3, 2024, and December 23, 2024, were given until January 13, 2025 to file their initial § These reporting companies were obligated to timely file their initial BOIRs before the temporary injunction issued.  This simply confirms that while the temporary injunction provided relief for those for whom the deadline had not yet arrived, FinCEN took the position after the stay of the preliminary injunction that the injunction did not affect the due date for those already not in compliance with the deadline.

|| Reporting companies created or registered in the United States on or after December 3, 2024, and on or before December 23, 2024, were given an additional twenty-one days from their original filing deadline to file their initial BOIRs with FinCEN.

# Reporting companies created or registered in the United States on or after December 24, 2024, and on or before December 31, 2024, were given 90 to file their initial BOIRs with FinCEN.

** 31 U.S.C. § 5336(b)(3)(ii) and 31 C.F.R. § 1010.380(b)(4)(ii) require those individuals and reporting companies that choose to obtain a FinCEN identifier to update the information that they have supplied in order to obtain the FinCEN identifier to reflect changes and corrections within thirty calendar days. Presumably, the nationwide preliminary injunction suspended enforcement of penalties for violating this requirement, but nothing in BOI Alert (December 23, 2024) explicitly tolled this thirty-day requirement.

Following the Fifth Circuit’s order lifting of the stay of the preliminary injunction, FinCEN updated the BOI Alert (December 23, 2024) on December 27, 2024 (thereby making it the BOI Alert (December 27, 2024)) to include language discussing the Top Cop Fifth Circuit Court Order. Among other things, BOI Alert (December 27, 2024) no longer mentioned the extension of due dates described in BOI Alert (December 23, 2024). Still, the due dates in the BOI Alert (December 23, 2024) remain of some interest because they suggest how FinCEN may respond if the preliminary injunction is lifted—that is, by affording a limited extension of time to some of the reporting companies that have been affected by the preliminary injunction.

All I Want for Christmas Is for the CTA to Have No Teeth

And so, as we have passed January 1, 2025, the date on which all existing entities were to have filed their BOIRs, where are we and why?

While the exact number of reporting companies that have filed their BOIRs is uncertain, pleadings in the Top Cop District Litigation suggested that at the time the preliminary injunction was issued on December 3, 2024, just approximately ten million of the estimated thirty-six million reporting companies had filed. Since this date, BOIRs have not been required, although FinCEN has continued to accept them. The hiatus in the requirement that BOIRs be filed will continue unless and until (i) the Fifth Circuit grants the government’s motion to stay the preliminary injunction, (ii) the Top Cop District Litigation is finally resolved in the government’s favor on the merits, or (iii) the government prevails on the Supreme Court Application for a Stay either because Supreme Court stays the preliminary injunction or because it determines that the preliminary injunction is inappropriate. The CTA is certainly not dead; those who have not complied when they were required to before December 3, 2024, are not exonerated; and, as demonstrated by the Top Cop motions panel Order, all of the requirements may come roaring back with very little time to prepare the required BOIRs.

Why are we in this situation? Is it because there is overwhelming support for money laundering, terrorist financing, and human trafficking? Is it because Americans, who readily surrender personal identifying information on technology platforms, are concerned about their privacy? We think not. Rather, the CTA has been adopted to satisfy an international consortium of law enforcement officials, most of whom operate under national legal systems that already require much more transparency of organizations than does the United States, particularly considering the strongly state-centric regulations of organizations. Similarly, compliance with Financial Action Task Force (“FATF”) mandates have entailed an attempted redefinition of the role of lawyers from honest advocates and advisers of clients to agents of law enforcement. Interestingly, since the adoption of CTA based upon the FATF’s mandates, the United States has narrowly elected an administration that is highly suspicious of international mandates and that has had its anticipated policies described in a document that advocates for a repeal of the CTA.

Over the four years that FinCEN has had to implement has declined to address many issues that have troubled those attempting to comply with the CTA—or, when addressing the issues, it has provided unworkable answers. These unworkable rules are imposed on millions of organizations at a cost to the organizations of billions of dollars, by FinCEN’s own reckoning. Thus, rather than trying to find an efficient way of dealing with the problems that FinCEN was trying to address, the CTA merely attempts to impose an international standard on U.S. organizations. What could possibly go wrong?

The authors received thoughtful comments from Jay Adkisson, Bill Callison, Eric Dante, Cathy Krendl, Herrick Lidstone, Chip Lion, and Kevin Shepherd, based upon which we rewrote many parts of this article to add new grammatical errors and fallacious conclusions for which those commenters are not responsible.

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