COUNSEL'S CORNER Legal Whiplash: Evolving Corporate Transparency Act Filing Deadlines By Erich M. Paetsch, Lawyer – Creditors’ Rights and Business Litigation Practice Group, Saalfeld Griggs PC A lot has been written about the Corporate Transparency Act (CTA) since its passage by Congress in January 2021. The CTA requires most corporations, limited liability companies, and similar entities to disclose their beneficial owners to the Financial Crimes Enforcement Network (FinCEN), a part of the U.S. Treasury Department. The CTA’s stated purposes include combating illicit activities like money laundering, terrorist financing and tax evasion by enhancing corporate transparency. The CTA impacts financial institutions indirectly, since most financial institutions are directly exempt from many of the CTA’s mandates. For example, if a title company is a nonexempt “reporting company” as defined in the CTA, it has certain reporting and record keeping obligations. After January 1, 2024, many title companies will require greater documentation for certain real estate transactions to satisfy the CTA. That process is complicating closing and delaying some transactions. Despite being exempt, lenders were forced to update underwriting and other policies to align their practices with the CTA. One requirement under the CTA that is under intense scrutiny is the independent obligation of reporting companies to provide information to FinCEN. The CTA requires companies formed in 2024 to fulfill their reporting obligation to FinCEN at the time of formation. For companies formed before 2024 and who are not exempt from the reporting requirements, receipt of beneficial ownership information (BOI) was due by January 1, 2025. However, numerous lawsuits have been filed challenging the reporting requirements of the CTA and altering the deadline of when BOI is due to FinCEN. In December 2024, the reporting deadline changed rapidly and several times, creating uncertainty about how to comply with the CTA. On December 3, 2024, in the case of Texas Top Cop Shop, Inc. v. Garland, the U.S. District Court for the Eastern District of Texas issued a preliminary injunction temporarily blocking enforcement of the CTA’s reporting requirements around the United States. Because some established corporations were unaware of the BOI reporting requirement or were waiting until the end of the year to submit their BOI to FinCEN, the District Court’s ruling created uncertainty about when and whether compliance with the CTA was necessary. While other litigation around the United States challenging the CTA was ongoing, this was the first time a U.S. District Court had issued a nationwide injunction halting the BOI reporting requirements under the CTA. In response, the Department of Justice (DOJ) filed a motion with the Texas District Court to stop the nationwide injunction while it was appealed to the Fifth Circuit Court of Appeals. When the District Court did not agree, the DOJ filed an emergency motion with the Fifth Circuit Court of Appeals seeking to reinstate the CTA’s reporting requirements and to stay the injunction on December 13. The DOJ asked the Fifth Circuit to rule “as soon as possible but in no event later than December 27, 2024, to ensure that regulated entities can be made aware of their obligation to comply before January 1, 2025.” After a highly publicized legal battle—creating constantly changing deadlines and whiplash for observers—the nationwide injunction remains in place until a complete ruling is issued by the Fifth Circuit Court of Appeals. The briefing to the Fifth Circuit about the nationwide injunction is due soon and oral arguments are scheduled for the end of March. Either party could file an emergency appeal of an adverse ruling to the U.S. Supreme Court. The evolving court decisions and constantly changing deadlines have created confusion and uncertainty about when and whether compliance with the CTA is required. It did not help that the Fifth Circuit overruled its own motions panel that initially ruled the nationwide injunction was improper. The reporting requirements under the CTA remain in limbo because of ongoing litigation. FinCEN currently states: “In light of a recent federal court order, reporting companies are not currently required to file beneficial ownership information with FinCEN and are not subject to liability if they fail to do so while the order remains in force.” A ruling from either the Fifth Circuit Court of Appeals or the Supreme Court revoking the injunction and reinstating the BOI filing requirement will occur after oral arguments. Any ruling terminating the nationwide injunction would reinstate the BOI reporting requirement to FinCEN immediately. Most authorities are now recommending nonexempt companies who have not already provided BOI to FinCEN should prepare their BOI reports to file as soon as a final decision on the injunction is reached. It is unclear how noncompliance with the reporting requirements may be enforced considering recent events, but the CTA includes stiff fines and penalties for noncompliance. 18 Winter 2025 • BANKING MATTERS
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