The U.S. legal system has become the battleground for the enforcement of the Corporate Transparency Act (CTA), with recent developments bringing new urgency to compliance deadlines for businesses. On December 23, 2024, the Fifth Circuit U.S. Court of Appeals issued a 'Stay' on the preliminary injunction previously set by the U.S. District Court for the Eastern District of Texas, which had temporarily halted the enforcement of the CTA's reporting requirements. With the January 1, 2025, deadline looming for virtually all legal entities to file Beneficial Ownership Information Reports (BOI), businesses now find themselves racing against the clock to comply, creating both urgency and confusion during the typically slow holiday season.
According to Accesswire, as of December 1, 2024, the Financial Crimes Enforcement Network (FinCEN) had received only 9.5 million of the 32.6 million required filings for entities existing as of January 1, 2024. This means just about 25% of required entities had submitted their reports, with serious consequences awaiting those who don't comply. Non-compliance under the CTA carries hefty fines of up to $591 per day and criminal penalties reaching $10,000 per report, not to mention potential prison sentences of up to two years.
The initial nationwide injunction came from Judge Amos Mazzant’s ruling on behalf of the National Federation of Independent Business (NFIB), which argued the CTA was likely unconstitutional. Judge Mazzant's 74-page ruling expressed concern over the government's ability to reconcile the CTA with constitutional standards, leading to significant worries among small business owners who believed they had gained relief from compliance requirements.
Despite those concerns, the Fifth Circuit's recent unanimous decision has reinstated the pressure on businesses to file their required reports. This sudden reversal came as the government filed its motion to stay the injunction, highlighting the ticking clock of the January 1 deadline.
Ian Gary, Executive Director of the FACT Coalition, welcomed the Fifth Circuit's decision, stating, "Today’s decision pauses the harmful and erroneous injunction... This ruling finds the CTA is likely constitutional as Congress had every right to open the money trail so our law enforcement officials can crack down on the crooks and criminals who abuse the system." This perspective emphasizes the CTA's function as a tool for transparency and law enforcement, particularly against crimes associated with the misuse of shell companies.
On the legislative front, the CTA was passed by Congress in 2021, but as small businesses scramble to comply, the swift judicial decisions have left many feeling anxious about the future. Congressional leaders recently proposed measures to delay the BOI reporting requirements, echoing the frustrations of many business owners. Although language was initially included to extend deadlines to 2026, the final bill passed did not contain this extension, complicity leaving firms with little breathing room.
Despite the court rulings favoring compliance, challenges remain. Another federal court ruled the CTA unconstitutional earlier this year, putting millions of small-business owners at risk of non-compliance penalties. Todd McCracken, President of the National Small Business Association (NSBA), has expressed the growing frustration of small businesses caught between conflicting court rulings. He said, "We will not go quietly; we will push for the unconstitutional CTA to be overturned through our lawsuit and repealed by Congress. It’s what America’s small businesses deserve." This sentiment captures the urgency faced by many as their operational futures hang precariously on the outcome of legal challenges.
Businesses formed before January 1, 2024, are expected to file these pivotal reports by the January 1 deadline, regardless of their hopes for legal relief or overturning the CTA. This directive applies equally to companies and all entities which will potentially need to navigate complex ownership structures and reveal sensitive information.
Kent Bacus, from the National Cattlemen’s Beef Association (NCBA), remarked, "The rollout of this has been a flop on behalf of the Treasury Department... If this moves forward, it will impact more than 32 million small businesses, including millions of farmers and ag producers." His warning serves as a reminder of how many sectors might be affected by compliance pressures and the potential fallout of non-compliance.
With multiple court cases pending on the CTA’s constitutionality, the law continues to face scrutinty. The Fifth Circuit's swift ruling has left many businesses with the immediate need to prepare for compliance, satisfying reporting requirements instilled to combat the flow of illicit financing.
Though the government's appeal process continues, small business owners must now prepare for the January deadline, knowing well the financial stakes involved. With calls for intervention at the congressional level pending, the CTA's fate—and the lives of millions of business owners—hangs precariously on upcoming legal decisions.
