What is CTA Reporting?  

The Corporate Transparency Act (CTA), enacted on January 1, 2021, as part of the National Defense Authorization Act, represents a significant step in reforming anti-money laundering laws. Its primary aim is to combat financial crimes such as money laundering, terrorist financing, corruption, and tax fraud. To achieve this, the CTA mandates that corporations, limited liability companies, and other similar entities formed or registered in the U.S. submit beneficial ownership information (BOI) reports to the Financial Crimes Enforcement Network (FinCEN), a bureau within the U.S. Department of Treasury. These reporting requirements took effect on January 1, 2024, with staggered deadlines depending on the entity’s formation or registration date. For entities formed before January 1, 2024, the initial BOI report must be filed by January 1, 2025. Entities formed after January 1, 2025, will have 30 days from formation to comply. However, recent litigation has disrupted these timelines.

Recent Developments

On December 3, 2024, the U.S. District Court for the Eastern District of Texas issued a nationwide preliminary injunction in Texas Top Cop Shop, Inc., et al. v. Garland, et al., halting enforcement of the Corporate Transparency Act (CTA) and its beneficial ownership information (BOI) reporting requirements. The court found the CTA likely exceeds Congress’s authority under the Commerce Clause and the Necessary and Proper Clause of the Constitution.

Implications of the Injunction

• Suspension of Reporting Requirements: Reporting companies are not currently required to file BOI reports with FinCEN while the injunction remains in effect. Noncompliance during this period will not result in penalties.
• Voluntary Submissions: Companies may still choose to voluntarily file their BOI reports.
• Potential for Change: The scope of the injunction may be challenged on appeal. If the injunction is lifted or narrowed, companies could be required to comply on short notice.

Government Response

The U.S. Department of Justice, representing the Department of the Treasury, filed an appeal on December 5, 2024. FinCEN issued a notice on December 7, 2024, affirming compliance with the court’s order but signaling that developments in the case could alter the reporting requirements.

Recommended Next Steps for Reporting Companies

1. Monitor the Case: Companies should stay updated on the litigation and appeals process.
2. Voluntary Filing: Consider filing BOI reports voluntarily to avoid last-minute compliance if the injunction is overturned.
3. Prepare for Compliance: Even if opting not to file now, companies should identify their reporting obligations and gather necessary information to ensure readiness for potential reinstatement of filing requirements.

Looking Ahead

As the January 1, 2025 filing deadline approaches for most companies, the timing of the appeal and any subsequent rulings remain uncertain. Companies are advised to remain proactive in preparing for potential changes to the CTA’s enforcement.

If you have any questions regarding your company’s filing requirements under the CTA or would like the KVK team to handle your filing on your behalf, please contact us.