The U.S. District Court for the Eastern District of Texas granted a nationwide preliminary injunction that enjoins the federal government from enforcing the Corporate Transparency Act and its beneficial ownership information reporting requirement.
In its ruling, the court determined the CTA and the reporting rule "are likely unconstitutional for purposes of a preliminary injunction. It has not made an affirmative finding that the CTA and [the] reporting rule are contrary to law or that they amount to a violation of the Constitution."
The court went further and ruled this is a nationwide injunction, applying against enforcement of the CTA and its impending Jan. 1, 2025, filing deadline.
Beginning Jan. 1, 2024, the CTA imposed a requirement to file beneficial ownership information with the Treasury's Financial Crimes Enforcement Network, or FinCEN. Existing companies were required to file within the year 2024, while a new company started during the year would have 30 days to file. It was estimated there would be 32.6 million filings in 2024 and between 5 and 6 million each year thereafter. The penalty for failure to comply is a $500 per day penalty, capped at $10,000.
A beneficial owner is one who directly or indirectly exercises "substantial control" over the reporting entity, or who directly or indirectly owns or controls 25% or more of the ownership interests of the reporting entity.
"We have always thought that a delay was necessary in the filing requirement," said Roger Harris, president of Padgett Business Services. "That's because of issues with the 30-day rule, and a lack of guidance on substantial ownership. This is almost a nail in the coffin of the current deadline."
"We're telling our people to continue to gather the information necessary to file the report, but to inform clients of where we are regarding the court injunction," he added. "We will wait until we get further information from FinCEN and DOJ before we file a report unless the client tells us to go ahead and file. What I hope we hear is that FinCEN believes it will take too long to resolve all the court cases and the outstanding issues about how the current program is being implemented, and will extend the deadline for one year to Jan. 1, 2026."
