The Corporate Transparency Act Had a Very Exciting Holiday Week!
If you and your family are having a busy, eventful and hectic Christmas or Hanukkah week, consider the topsy-turvy week the Corporate Transparency Act (“CTA”) has had. Spoiler alert: The CTA is once again on hold.
Eariler this Month
In early December, when shoppers were already growing weary of peppermint spice and endless Christmas carols, a federal district court in Sherman, Texas issued a nationwide preliminary injunction (“Injunction”) blocking all enforcement of the CTA. The Injunction, issued on December 3 in Texas Top Cop Shop, Inc. v. Garland(“TTCS”), was primarily based on the court’s determination that the CTA is “likely unconstitutional” because it exceeded Congress’s constitutional authority. The Injunction was an early holiday gift for the privately-owned companies formed before 2024 (“pre-2024 companies”) — all 20 million or so of them – that faced an impending January 1, 2025 reporting deadline under the CTA. But for the U.S. Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), which administers the CTA, the Injunction was a big, dusty bag of coal. FinCEN soon appealed the Injunction to the U.S. Court of Appeals for the Fifth Circuit (the “Fifth Circuit”) and filed an emergency motion seeking a temporary stay (pause) of the Injunction, until FinCEN’s appeal can be heard.
Excitement on Capitol Hill
In the week before the holidays, the nation’s Capitol was a center of excited, bustling activity — not because of upcoming holiday festivities, but because the federal government was about to shut down. Congress could only avert a shutdown by passing a “continuing resolution” (“CR”) to fund the government for a few more months. And when the first version of the CR was unveiled, and eagerly unwrapped by lobbyists and journalists with the excitement of small children on Christmas morning, it was found to contain another CTA present: a one-year extension of the reporting deadline for pre-2024 companies, to January 1, 2026. But politics intervened, and the stripped-down CR that was ultimately enacted on December 20 contained no CTA relief. (But at least the government was saved!)
It’s December 23rd in New Orleans
As New Orleanians prepared to celebrate the holidays with appropriate joie de vivre, three judges of the Fifth Circuit had more serious business to attend to. A Fifth circuit motions panel was considering FinCEN’s emergency motion for a stay of the TTCS court’s nationwide Injunction against the CTA. They — or at least two of them — found themselves unpersuaded by the TTCS court’s conclusion that the CTA is “likely unconstitutional,” and instead decided that the CTA is likely constitutional. For that reason, the motions panel granted FinCEN’s request for a stay of the Injunction. Because the stay temporarily paused the Injunction, and because the Injunction itself had temporarily paused the CTA, staying the Injunction had the effect of reviving the CTA. And reviving the CTA meant that pre-2024 companies suddenly had nine days in which to meet the January 1, 2025 reporting deadline.
FinCEN’s Heart Grows Larger
FinCEN was overjoyed that the Injunction had been stayed. But it knew that Christmas and Hanukkah were nigh, and requiring companies to prepare CTA filings over the holidays would simply be cruel. So, just as the Grinch’s heart grew three times in Whoville, FinCEN announced later on December 23 that pre-2024 companies would have an extra dozen days (until January 13, 2025) to file, and it also granted extensions for some categories of companies formed in late 2024.
The Twist Ending
Ever since O. Henry’s The Gift of the Magi, twist endings have been a favorite feature of many holiday stories — and this tale of the CTA’s exciting holiday week is no exception. Late on December 26, the Fifth Circuit — presumably acting through the merits panel that will hear FinCEN’s appeal of the Injunction —vacated (terminated) the motion panel’s stay of the Injunction.
This perhaps lacks the punch of discovering that Bruce Willis had been dead all along, but it’s still a twist. The Injunction temporarily paused the CTA. The stay of the Injunction temporarily paused the Injunction. Vacating the stay terminated the stay. The result is that the Injunction is once again in effect, and the CTA is once again on hold. While the Injunction remains in effect, companies do not have to make CTA filings. This is the case not only for pre-2024 companies, but also for companies formed in 2024 (or, soon, in 2025).
What Happens Next?
It’s tempting to say “who knows?” in light of the CTA’s recent twists and turns. What we expect to happen next is the Fifth Circuit will consider the merits of the TTCS court’s nationwide Injunction. The Fifth Circuit has scheduled briefing by the parties during February, and oral argument before a Fifth Circuit merits panel on March 25.
There are also other CTA events on the horizon:
- The TTCS court will, eventually, receive briefing and hear oral arguments on the merits of the plaintiffs’ constitutional challenge to the CTA.
- There are pending appeals to federal circuit courts of other decisions on the CTA’s constitutionality. A federal district court in Alabama found the CTA unconstitutional (but did not issue a nationwide injunction), while federal district courts in Oregon and Virginia have found it constitutional. All of those cases are on appeal.
- The Trump Administration could decide the CTA’s fate. Although the incoming Trump Administration is expected to have an anti-regulatory philosophy, and Project 2025 specifically called for the CTA’s repeal, there have been no official statements about the CTA from the incoming Administration. It could block the CTA in various ways if it chooses to do so: for example, by ending enforcement efforts, supporting Congressional repeal or relief, or dropping FinCEN’s defense of the CTA’s constitutionality in the Fifth Circuit and other federal circuit courts. But we currently do not know what the incoming Administration’s plans are for the CTA.
How Cokinos | Young can help
The corporate attorneys at Cokinos | Young are closely monitoring these CTA developments and will provide further updates as important events occur. In the meantime, if you would like to discuss what your company should do to comply with the CTA, please contact one of our following corporate attorneys:
