The story of the Corporate Transparency Act and its reporting requirement on beneficial ownership information continues.


When the District Court for the Northern District of Alabama ruled that the CTA was unconstitutional on March 1, 2024, it specified that the ruling applied only to the 65,000 members of the plaintiff organization, the National Small Business Association.


But on December 3, another court, the District Court for the Eastern District of Texas, said granted a national interim injunction prohibiting the federal government from fully enforcing the CTA and reporting rule. The order, the court ruled, applies against enforcement of the CTA and its filing deadline of January 1, 2025. The Department of Justice appealed the order two days later, on December 5, 2024.




Building of the Ministry of Finance

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Effective January 1, 2024, the CTA has imposed a requirement to submit beneficial ownership information to the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN. Existing companies were required to apply within the year 2024, while a new company incorporated in 2024 would have 30 days (temporarily extended to 90 days for 2024 only) to apply. An estimated 32.6 million cases were expected in 2024, with five to six million expected each subsequent year. The fine for non-compliance is $500, with a maximum of $10,000.


A beneficial owner is someone 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 believed that a delay in the filing requirement was necessary,” said Roger Harris, president of Padgett Business Services. “This is due to problems with the 30-day rule and the lack of guidance on substantial ownership.”


“We are telling our people to continue gathering the information necessary to file the report, but to inform customers of where we stand on the court order,” he continued. “We will wait until we get more information from FinCEN and DOJ before filing 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 lawsuits and outstanding issues about how the current program is being implemented, and will extend the deadline by one year to January 12, 2026 .”


“The problem with the injunction is that it doesn’t discuss any possible solutions for what will happen once the injunction is lifted or an appeals court says it was wrongly decided,” said attorney Michael Chua. “It does not say that the deadline will automatically be extended by a year if the ban disappears. Technically, those deadlines are still in effect. That’s the biggest concern right now because it doesn’t provide any solution – it’s kind of a head scratcher.”


At this time, there is no requirement to file, noted Earl Melamed, partner and head of the CTA working group at law firm Neal, Gerber & Eisenberg.


But the penalties are harsh and likely to catch people unaware, he said, so companies may not want to ignore the requirement entirely.


“We propose that our clients can pause any tax return they would otherwise file, but continue to gather the information so they are ready to file,” Melamed said. “The requirement could be reimposed at any time – the Texas court did not decide that the CTA was unconstitutional, they just said it would ‘likely’ be found unconstitutional. The appeals court could vacate the order, but say the deadlines would be extended by a year; They could offer more time to file, but they don’t have to.”


Melamed believes the DOJ will fight very hard to lift the order. But given that there are a number of cases pending in various courts across the country seeking to overturn the CTA on constitutional grounds, the question could ultimately end up before the Supreme Court.


“If there are two conflicting rulings, that’s the ticket to the Supreme Court,” he said.



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