Beneficial Ownership Reporting: Litigation, Pending Legislation and Possible Future Executive Action Have Left the Fate of the Corporate Transparency Act (CTA) Up in the Air

Adopted in January 2021, the Corporate Transparency Act (CTA) is intended to assist in identifying beneficial ownership and control of entities operating in the United States in order to facilitate anti-terrorism, anti-money laundering and tax collection activities of federal, state and foreign governments. The act obligates entities formed or qualified to do business in the U.S. to report individuals who substantially own and control them, or who helped form them—except for entities that fall within one of the numerous exemptions provided. This information is being collected by FinCEN, an arm of the U.S. Treasury Department, and maintained in a confidential database that will be accessible by governmental authorities and authorized lenders, but not by the general public. Willful failure to comply with the CTA can result in material civil and criminal fines and penalties.

The constitutionality of the CTA is being contested in multiple federal courts, and bills are before Congress to repeal it. One focal point has been the January 1, 2025, deadline set by FinCEN’s regulations for reporting companies created prior to January 1, 2024, to make initial filings. In one of the cases, Texas Top Cop Shop, Inc., et al. v. Merrick Garland, Attorney General of the United States, et al., No. 4:24-CV-478 (E.D. Tex. filed Dec. 3, 2024), a Texas Federal District Court judge issued a nationwide preliminary injunction staying enforcement of the CTA by FinCEN. This order became the subject of motions before the Fifth Circuit Court of Appeals and, subsequently, the U.S. Supreme Court (SCOTUS).

A Fifth Circuit panel first held that the nationwide preliminary injunction should be stayed so that enforcement of the CTA could proceed. FinCEN then granted an additional grace period for required filings to reflect the period when the preliminary injunction was in effect.

This was reversed on December 27, 2024, when the Fifth Circuit merits panel reinstated the nationwide preliminary injunction (granted in the Texas Top Cop Shop case) preventing enforcement by FinCEN of the CTA, pending further action by the Fifth Circuit Court of Appeals. This determination was appealed to SCOTUS.

On January 23, 2025, SCOTUS issued a ruling allowing FinCEN to enforce the CTA. The Court stayed the preliminary injunction pending the disposition of the appeal before the Fifth Circuit Court of Appeals (oral arguments before the Fifth Circuit are scheduled for late March 2025) and disposition of the petition for a writ of certiorari (if timely sought following the ruling by the Fifth Circuit). Should certiorari be denied, the stay of the preliminary injunction precluding enforcement of the CTA would automatically terminate. Justice Gorsuch issued a short separate concurrence and Justice Jackson a brief dissent.

It appeared that as a result of the lifting of the Texas Top Cop Shop preliminary injunction, absent a further extension of deadlines to file under the CTA, reporting companies formed before January 1, 2024, might have been in default under the CTA if they did not immediately file their initial beneficial ownership information report. However, the effect of the SCOTUS decision to allow FinCEN to enforce the CTA was immediately questioned. Commentators, including the Wall Street Journal, noted that on January 7, 2025, a second Federal District Court in Texas had issued its own nationwide preliminary injunction in Samantha Smith and Robert Means v. United States Department of Treasury. They suggested that, because this preliminary injunction was not covered by or mentioned in the SCOTUS opinion, FinCEN remains enjoined from enforcement of the CTA despite the SCOTUS opinion.

On January 24, 2025, FinCEN accepted this analysis and announced (in a revised Alert on its website) that the second preliminary injunction under Samantha Smith and Robert Means v. United States Department of Treasury remains in effect nationwide, notwithstanding the SCOTUS ruling in Texas Top Cop Shop. For the moment, although for an uncertain duration, no further filings are required under the CTA, but FinCEN is welcoming voluntary filings.

Adding to the uncertainty, there is action in the legislative branch to repeal the CTA. Earlier in January, Rep. Warren Davidson (R-OH) re-introduced the Repealing Big Brother Overreach Act in the House of Representatives. Sixty-eight House colleagues provided support, and U.S. Senators Rand Paul (R-KY) and Tommy Tuberville (R-AL) introduced a Senate companion bill of the same name. Jointly, these efforts aim to repeal the CTA. While an earlier effort to repeal the CTA failed in 2024, these efforts seem to be garnering more support with the recent changes in Washington, D.C.

Conclusion
As of close of business on January 24, 2025, enforcement by FinCEN of the deadlines under the CTA is once again enjoined. Given the number of courts in which CTA issues are being litigated, the pending Congressional legislation and the fact that the Trump Administration has not, as yet, taken an official position on the CTA, we are unable to predict the nature or timing of future developments.