On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction prohibiting enforcement of the Corporate Transparency Act (“CTA”) and associated regulations by the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”).
The Court held that “the CTA is likely unconstitutional as outside Congress’ power.” The scope of the injunction precludes enforcement of any of the filing requirements of the CTA for companies formed before or after January 1, 2024.
For a bit of background, the CTA, which took effect on January 1, 2024, attempts to hinder money laundering, tax fraud, terrorism financing, and other financial crimes through shell or front companies. It requires certain entities to report beneficial ownership information to the U.S. FinCEN.
The entities required to report under the CTA include corporations and LLCs, in addition to various other business entities created by filing a document with a secretary of state or any similar office under the law. There are twenty-three categories of entities that are exempt from the reporting requirement. Examples of entities that are not required include banks, credit unions, and tax-exempt entities registered with the IRS.
Be cautioned that this ruling is a preliminary injunction, and it is expected that the government may seek an expedited appeal of the decision which could result in the reversal or narrowing of the injunction, so that the January 1, 2025 filing deadline for reporting companies formed before 2024 ultimately might not be extended to a later date.
That being the case, even though, per the injunction, companies do not currently need to file reports under the CTA, it may still be prudent for companies to continue to gather the requisite information for filing and be prepared to file in anticipation of a potential stay or modification of the Court’s injunction.
If you have questions regarding the CTA or the preliminary injunction, please contact Joshua B. Beisker at 585-258-2879 or jbeisker@underbergkessler.com.
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