Recent developments in federal courts have created significant uncertainty around the implementation of the Corporate Transparency Act (CTA). On December 26, 2024, the Fifth Circuit Court of Appeals reinstated a nationwide injunction that temporarily halts the enforcement of the CTA’s reporting requirements. This decision came shortly after FinCEN had announced new reporting deadlines following an earlier court ruling. The current injunction maintains what the court calls the “constitutional status quo” while a merits panel evaluates the fundamental legal questions surrounding the CTA’s validity.
Understanding the Corporate Transparency Act
The CTA represents one of the most significant changes to corporate compliance requirements in recent years. Congress enacted this legislation as part of the Anti-Money Laundering Act of 2020 to combat the use of shell companies for illicit purposes, including money laundering, terrorism financing, and tax fraud.
Who Must Report?
When the CTA becomes effective, it will apply to most corporations, limited liability companies, and similar entities created by filing documents with state authorities or foreign entities registered to do business in the United States. However, the Act provides twenty-three specific exemptions, including:
Publicly traded companies Companies registered with the SEC Tax-exempt organizations Companies with more than 20 full-time employees and $5 million in gross receipts Banks and credit unions Insurance companies
Reporting Requirements
Once the injunction is lifted, affected companies will need to file beneficial ownership information (BOI) reports with FinCEN. These reports must include detailed information about the company’s beneficial owners – individuals who either exercise substantial control over the entity or own or control at least 25% of the ownership interests.
The information required includes:
- Full legal name
- Date of birth
- Current residential or business address
- Unique identifying number from an acceptable document (such as a passport or driver’s license)
Penalties for Non-Compliance
The CTA includes substantial penalties for failing to comply with its reporting requirements. Violations can result in:
- Civil penalties of up to $500 per day while the violation continues
- Criminal fines up to $10,000
- Imprisonment for up to two years
- Additional penalties for unauthorized disclosure or use of reported information
Current Status and Next Steps
While the nationwide injunction remains in effect, businesses are not required to file BOI reports, though they may do so voluntarily. However, given the fluid nature of this situation and the possibility that the injunction could be lifted at any time, businesses should prepare their compliance strategies now.
Our Experience and How We Can Help
At HV Legal, our corporate law team brings decades of combined experience in helping businesses navigate complex regulatory requirements. We have closely monitored the development of the CTA since its inception and have developed comprehensive compliance strategies for businesses of all sizes. Our attorneys understand the nuanced requirements of the Act and can help ensure your business is prepared when enforcement resumes. Whether you need assistance determining if your business falls under the CTA’s requirements, preparing beneficial ownership reports, or developing compliance procedures, we encourage you to contact our office. In these uncertain times, having experienced legal counsel can make the difference between smooth compliance and costly penalties.
