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Fifth Circuit Delays Implementation of Corporate Transparency Act

Court Ruling Impact on Small Businesses

News Summary

The U.S. Court of Appeals for the Fifth Circuit has indefinitely delayed the financial disclosure requirements of the Corporate Transparency Act, providing temporary relief for small businesses. This ruling reinstates an injunction blocking beneficial ownership reporting, initially set to enforce in January 2025. Legal uncertainty remains as the court prepares to hear the government’s appeal in March 2025, prompting businesses to stay vigilant regarding compliance obligations.

Alabama – The U.S. Court of Appeals for the Fifth Circuit has indefinitely delayed the implementation of the financial disclosure requirements outlined in the Corporate Transparency Act (CTA). This decision reinstates a nationwide injunction that blocks the beneficial ownership information (BOI) reporting requirements for small businesses in Alabama and throughout the United States. This ruling comes as the court considers the government’s appeal regarding the CTA and its reporting mandates.

In its latest ruling, the Fifth Circuit nullified an earlier order that had permitted the government to enforce the CTA, originally slated to have a compliance deadline of January 13, 2025. The reinstatement of the injunction means that small businesses will not be required to submit beneficial ownership information until further notice.

This legal development has been characterized as a short-term victory for small businesses, though it has led to ongoing uncertainty about filing obligations. Experts emphasize that confusion surrounding the requirements continues to burden business operations, potentially resulting in wasted time and financial resources. Businesses have been advised to remain prepared to file their reports should the status of the injunction change, as the situation remains fluid.

About the Corporate Transparency Act

The Corporate Transparency Act was enacted as part of the National Defense Authorization Act for the fiscal year 2021. It is designed to enhance transparency regarding the ownership of corporations and limited liability companies by requiring them to report their beneficial owners to the Financial Crimes Enforcement Network (FinCEN). The law is set to take effect on January 1, 2024, but certain entities are excluded from its requirements. Specifically, the CTA does not apply to businesses with more than 20 full-time employees, those that file federal income tax returns showing gross receipts exceeding $5 million, and companies that maintain a physical presence in the United States.

As a result, the bulk of the reporting obligations under the CTA will fall on small businesses, particularly those with fewer than 20 employees and less than $5 million in sales annually. The reinstatement of the injunction has provided relief to many within this sector following a period of chaos and uncertainty regarding beneficial ownership reporting requirements.

Current Status of Reporting Obligations

On December 27, 2024, FinCEN confirmed that reporting companies are not currently required to file BOI information and will not face penalties for noncompliance while the injunction remains in effect. However, FinCEN does continue to accept voluntary submissions of beneficial ownership reports from businesses that choose to file them.

The Fifth Circuit is set to conduct oral arguments regarding the government’s appeal on March 25, 2025. Until a ruling is made, it is anticipated that the injunction may continue to remain in place. Meanwhile, the Department of Justice has filed an application with the U.S. Supreme Court to stay the injunction, pending the outcome of its appeal.

Future Considerations for Small Businesses

It is important for companies potentially affected by the CTA to actively monitor ongoing litigation and any announcements made by FinCEN related to their reporting obligations. Businesses are advised to assess their status concerning the CTA and prepare to act swiftly should the reporting requirements be reinstated in the future.

In summary, the Fifth Circuit’s recent ruling has provided temporary relief to small businesses by blocking the implementation of the CTA’s BOI reporting requirements. However, the legal landscape remains uncertain as the court prepares to hear further arguments regarding the government’s appeal.