If you’re confused by the current state of the Corporate Transparency Act (CTA), you’re not alone.
The legal developments surrounding the act in the past month have been dizzying, and the fate of the legislation is currently on hold.
Summary
The Corporate Transparency Act was enacted in 2021 to combat illicit activity, including tax fraud, money laundering, and terrorism financing, by capturing more ownership information for certain U.S. businesses operating in or accessing the U.S. market. Critics argue it places a significant burden on small businesses required to collect beneficial ownership information.
The CTA went into effect on Jan. 1, 2024, requiring many small business owners to file corporate transparency reports. For most businesses, the filing deadline was initially set for Dec. 31, 2024. The act carried significant penalties for noncompliance, including up to two years of imprisonment and fines up to $10,000, plus civil penalties of up to $591 per day for failing to file or update required information.
Timeline of Recent Developments
- Dec. 3, 2024: The U.S. District Court for the Eastern District of Texas issued a preliminary injunction, ruling that the Corporate Transparency Act is likely unconstitutional and prohibiting enforcement of the CTA nationwide. The Financial Crimes Enforcement Network (FinCEN), the Department of the Treasury agency responsible for enforcing the CTA, suspended all filing obligations while appealing the court order.
- Dec. 23, 2024: A three-judge panel of the U.S. Court of Appeals for the 5th Circuit stayed the nationwide injunction pending FinCEN’s appeal, effectively reinstating the CTA’s reporting requirements but extending the filing deadline to Jan. 13, 2025.
- Dec. 26, 2024: The full 5th Circuit vacated the portion of its order that stayed the district court’s preliminary injunction, again pausing the reporting requirements.
It remains to be seen whether FinCEN will appeal to the U.S. Supreme Court.
Further complicating the situation is the impending transition in the executive branch in less than two weeks. It’s unclear what stance a Trump administration Department of the Treasury will take on the CTA’s merits.
The Naperville Area Chamber of Commerce Government Affairs staff will continue monitoring this issue and will keep you informed of pertinent developments.