After a Texas federal district court halted enforcement of the Corporate Transparency Act weeks before the filing deadline for most entities, experts discuss how to respond and what’s at play.
Background.
The Corporate Transparency Act requires specified business entities to file reports detailing their owners, officers, and other control persons with Treasury’s Financial Crimes Enforcement Network (FinCEN). The law is intended to combat money-laundering, financing of terrorist activities, and tax evasion — but it has faced fierce opposition. Treasury had set January 1, 2025, as the deadline for most entities’ reports.
There are lawsuits pending in multiple federal courts challenging the constitutionality of the law — and two courts have now enjoined its enforcement. While the first court halted the beneficial ownership reporting requirements only for the plaintiffs in that case, on December 3, the U.S. District Court for the Eastern District of Texas enjoined enforcement “nationwide.” (Texas Top Cop Shop, Inc., v. Garland, 2024 WL 4953814 (E.D. Tex. 12/03/2024))
Current status of the law.
Polsinelli attorney Bill Quick told Checkpoint that despite the recent ruling, the Corporate Transparency Act “is still the law of the land. It’s in effect and hasn’t been overruled.”
Quick, who serves as Polsinelli’s Corporate Transparency Act Chair, explained that FinCEN still has their system — the Beneficial Ownership Secure System (BOSS) — set up and is still receiving filings.
FinCEN did add an alert to their website indicating that beneficial ownership reporting will be “voluntary” while the Texas court’s order is in force.
Quick explained that despite that alert, “the obligation to file has already accrued, there’s just no deadline associated with it.” He added that until further court proceedings in the Fifth Circuit — where the Texas decision has been appealed — “we’re not going to know if, or when, there ever is going to be another filing deadline.”
“It’s a preliminary injunction, so this is not a final determination,” Mark Limardo, a partner at Herrick and head of the firm’s Corporate Transparency Act working group, told Checkpoint. And the “nightmare scenario” is that the injunction is lifted and neither the court nor the government provides a grace period for filing.
The FACT Coalition’s Erica Hanichak told reporters during a December 11 briefing that she is “confident” the appellate courts will uphold the law “as an appropriate exercise of Congress’s powers.” The Corporate Transparency Act had bipartisan support when it was passed under President-elect Trump’s first administration, she explained.
“It’s also important to note that incoming picks for the Trump administration have a long history of supporting the Corporate Transparency Act back when they were in Congress,” said Hanichak. Senator Marco Rubio (R-FL) and Representative Michael Waltz (R-FL) “were vital in passing this law back in 2021,” she explained. Trump tapped Rubio for secretary of state and chose Waltz for national security adviser.
The law’s “wide coalition” of support also includes banks, consumer protection organizations, police officers, civil rights groups, and environmental groups, according to Hanichak. “It’s been faithfully implemented under the Biden administration,” she added.
Clients’ options.
But with the temporary injunction in place, many are unsure whether to file their reports. Quick said “it’s perfectly acceptable to just sit back and wait at this point; it’s perfectly acceptable to go ahead and finish out your filing if you want.”
Limardo said entities are torn about next steps after the Texas decision. “You either continue to spend time and money on law that may never go into effect,” or that may not go into effect until “way down the line,” or you risk “getting caught short” if the appellate court lifts the injunction.
Quick laid out three courses of action reporting entities are taking. Those who are “80+% of the way done with their filing” are generally “just getting the filing done,” he said. These entities had already compiled most, or all, of the needed information before the Texas decision. Many of these entities will just say, “I’m just going to file and be done with it; not to think about it anymore.”
However, some of these near-complete entities will “finish assembling the information and just put it on the shelf,” said Quick. “Then when they do have to file, it’s a very simple process. They’re just waiting to file.”
In another bucket are those entities who “had put off filing, or didn’t know about filing.” These entities, said Quick, “are just kind of putting pens down until they hear more.” They don’t plan to “spend any more time or effort” until there is more certainty.
The final group of entities is somewhere “in the middle,” said Quick. For that group, that answer is a bit more complicated.
“Anytime you ramp up to meet a deadline, there’s a flurry of activity and expense that’s associated with that,” said Quick. “If you just kind of stop and you don’t take that last step over the goal line, then whenever you pick it up in the future, there’s going to be added expense and effort to get back to that point and then finishing it.”
Some entities might make the “calculation” that they are close enough to having the information compiled and should “just finish” the filing so they don’t have to ramp up and go through the whole process again later. But those that have had trouble getting information from some beneficial owners may just conclude, “We’ll fight that battle when we have to fight that battle.”
For Limardo, the decision on whether to proceed with filing may come down to personal preference and entity complexity.
For an entity with a simple structure, like “a single member LLC that runs a corner store,” filing will be straightforward. If that member “doesn’t really care about the privacy issues,” Limardo suspects they will move forward with their filing. But other clients with more complex filings might take the opposite approach, finding that filing is “expensive” and “takes a lot of time away from management.”
However, if a client has “a lot of entities,” the penalties for non-filing could be steeper, Limardo explained. Some clients might file by the January 1 deadline, concluding, “it’s not worth me losing sleep over.”
Limardo noted the wording of FinCEN’s alert — reporting companies “will not be subject to liability if they fail to [file their report] while the preliminary injunction remains in effect.” The alert doesn’t tell you “what’s going to happen when the injunction comes off,” he added, creating uncertainty for entities.
What’s at stake.
Quick’s take on the Corporate Transparency Act’s reporting requirements is that “this information is out there with the government.” The law doesn’t require you “to disclose any more information than is already privy to the government in one way or another,” he said. “It’s maybe not as conveniently packaged as it will be in the BOSS system, but it’s there.”
Hanichak agreed. “Filing is easy and doesn’t take much time. And honest small business owners were never going to be targeted in terms of the compliance,” she said.
The Corporate Transparency Act is a “a tool” for law enforcement to uncover information and “to know where to look,” explained Hanichak. She called the Texas decision a “lifeline to fentanyl traffickers, to U.S. adversaries, and to others that abuse the secrecy of the U.S. financial system.”
Appeals take time, and in the event of a circuit split, the issue could go to the U.S. Supreme Court. This just “unnecessarily delays getting these resources” into “the hands of law enforcement, prosecutors, and national security officials,” according to Hanichak.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
